1.3.4 Information Gaps Flashcards
What is information failure
Information failure occurs whne people have inaccurate, incomplete, uncertain or misunderstood data and so make potentailly ‘wrong’ or sub-optimal choices
Causations of information gaps
- Misunderstanding/Uncertainity the true costs/benefits
- Complex information
- Inaccuate or misleading information
- Addiction
- Lack of awareness
- Habitual purchase
Examples of Information Gaps
- Risks from tanning salons
- Addiction to painkillers and other drugs
- Gaining entry to elite degree courses
- Complexity of pension schemes
- Uncertain quality of second hand products
- Knowledge of nutritional content of foods
- Selling antiques
What is symmetric information
consumers and producers have the same knowledge about products
They know everything there is to know about the effects of consumption
True or False?
For markets to work there needed to be symmetric information
True
What is asymmetric information
when there is an imbalance in the information between buyers and sellers which can distort choices
Examples of asymmetric information
- Landlords know about their properties than tennants
- Doctors know more about medication and treatments than patients
- A used-car seller know more about the vechicle quality than the buyer
What is a moral Hazard, in terms of insurance markets
occurs when insured consumers are likely to take greater risks, knowing that the claim will be paid for by their cover
What is adverse selection, in terms of health insurance market
Those who are more likely to purchase health insurance are more likely to use it
Health insurance companies know this and therefore rasie average prices of insurance cover
This may price some health low-risk consumers out of the market
How would market failure be shown on a Cost/Benefit and Output/Quantity diagram
Individuals may have imperfect information about their own private benefits.
If they had fuller/better information on the benefits to themselves of consuming a good or service, the marginal private benefit curve would shift lower leading to a smaller equalibrium (Q2 to Q1)
What is a merit good
These are goods for people than they realise
MPB is higher than realised
Leads to under-consumption
What is a demerit good
These goods are worse for people than they realise
The MPB is less than realised
This leads to over-consumption
What is the difference between merit/demerit goods and positive/negative externalities
Merit/demerit - information failures leading to differences between actual and perceived private benefits
Positive/negative externalities - refer to impacts on third parties
5 ways the government can intervene to prevent information failures
Force producers to provide accurate information
Campaigns
Press laws
Force publication of data
Establishing regulators, and industry standards
