22-Imperfect Market Information

Question 1

Define Imperfect Market Information / Information Gap

Answer 1

It means Economic Agents lack knowledge to make Rational Choices and will not be able to Maximize their Benefits

Question 2

Define Asymmetric Information

Answer 2

When One party in a Transaction has MORE INFORMATION than the Other Party and this leads to INEFFICIENT Allocation of Resources and MARKET FAILURE

Question 3

Give Examples of Asymmetric Information

Answer 3

–> HealthCare Market
–> Insurance Market
–> Education
–> Pension Market
–> Vaccination Market

Question 4

Elaborate the Example of Asymmetric Information
–> HealthCare Market

Answer 4

Doctors Know more than Patients about their treatment, they may act in Self-Interest by Prescribing more treatment than is required to Increase Profit. This is an Insufficient use of Resources

Question 5

Elaborate the Example of Asymmetric Information
–> Insurance Market

Answer 5

It exists as people may not know the risk and cost incurred when they meet an Accident or Treatment they need in the Future. This leads to an Under Consumption of Car or Health Insurances. This is an Insufficient Allocation of Resources and thus Market Failure

Question 6

Elaborate the Example of Asymmetric Information
–> Education

Answer 6

Asymmetric Information regarding the Long term Benefits of Education leads to an Under Consumption of Education

Question 7

Elaborate the Example of Asymmetric Information
–> Pension Market

Answer 7

It leads to people making Inadequate provision for Pension, young workers do not know what Living would be when they Retire because of Uncertainty of their Future Circumstances such as Financial Needs, Quality of Health and Longevity

Question 8

Elaborate the Example of Asymmetric Information
–> Vaccination Market

Answer 8

It exists when people dont have information to Calculate Possible Benefits of Vaccine Compared to the Costs of Vaccine