2.2 Imperfect Infomation

Question 1

What does traditional economic theory assume?

Answer 1

Customers have perfect information

Question 2

What happens as a result of imperfect information?

Answer 2

Wrong decisions

Question 3

How can a choice be wrong at rational at the same time?

Answer 3

£100 pounds in a rock concert

-waste of money and should have been spent elsewhere

-at the time it seemed like a good decision

Question 4

Give an example of a merit good?

Answer 4

Education

Question 5

Give an example of a demerit goods?

Answer 5

Tobacco

Question 6

Asymmetric information?

Answer 6

When one party to a market transaction possesses less information relevant to the exchange than the other

Question 7

What can the buyer and the seller in the market suffer from?

Answer 7

Imperfect information

Question 8

When does asymmetric information occur?

Answer 8

When the buyer or seller involved in a potential transaction knows something that is not observable to the other party

Question 9

What process can asymmetric information manifest itself as?

Answer 9

Adverse selection

Question 10

Describe adverse selection?

Answer 10

Sale of second hand computers

-seller knows their flaws and lowers all their prices despite some of them being good

Question 11

What is the nudge theory

Answer 11

concept in behavioral economics, decision making, behavioral policy, social psychology, consumer behavior, and related behavioral sciences that proposes adaptive designs of the decision environment as ways to influence the behavior and decision-making of groups or individuals

Question 12

What is adverse selection?

Answer 12

when sellers have information that buyers do not have, or vice versa, about some aspect of product quality