2.9 - Information failure Flashcards
What does symmetric information mean?
Symmetric information means that consumers and producers have perfect market
information to make their decision.
What can symmetric information lead to?
This leads to an efficient allocation of resources.
What does asymmetric information mean?
This is when there is unequal knowledge between consumers and producers.
What is an example of asymmetric information?
For example, a car dealer might
know about a fault with the car that the consumer is unaware of.
What can asymmetric information lead to?
It can lead to a misallocation of resources.
What can imperfect information do?
Imperfect information can discourage buyers and sellers from participating in the market.
What is it called when buyers and sellers are discouraged from participating in the market?
There will be fewer active agents in the market, so the market will called a ‘thin’ market.
What is it called when there are many buyers and sellers?
It is called thick market.
What do buyers with imperfect information often believe?
Buyers with imperfect information often think that price signals product quality. For example, a Michelin-starred restaurant selling expensive food is often assumed to be of better quality than a cheaper alternative, like McDonalds.
What happens as a consequence of buyers using market prices to make assumptions about quality?
Markets can struggle to reach an equilibrium price and quantity.
What do consumers only take into account? (in a free market)
Private benefit.
Why might perfect information help the social benefit of goods?
If consumers had perfect information, they might realise the additional benefits a merit goof can bring.
What would perfect information do to consumption of demerit goods?
The consumers may realise the negative effects consumption of the demerit good.
