5.6 Market imperfections

Question 1

What is the provision of information?

Answer 1

Provision of information ensures that economic units can maximise decisions when consuming and producing goods and services
The government will provide information where the private sector fails to do so

Question 2

Why does the government use the provision of information?

Answer 2

The greater the information available to consumers the more likely they are to buy goods and services with confidence.

Question 3

What are examples of when the government uses the provision of information?

Answer 3

The job market
Dangerous products e.g. cigarettes
Economic data to help firms plan for the future

Question 4

Why do market imperfections occur?

Answer 4

In reality we don’t have perfect information to make a fully informed decision we have imperfect information. We are not fully aware of all the benefits and consequences of our actions meaning we over or under consume.

Question 5

What is information failure?

Answer 5

Information failure is a type of market failure where consumers or producers:

• do not have symmetric information
• have asymmetric information

Question 6

What is symmetric information?

Answer 6

Symmetric information is when all the relevant information is known by both parties.

Question 7

What is asymmetric information?

Answer 7

Information asymmetry occurs when some parties in a transaction have more information regarding the product than others.

Question 8

What is perfect knowledge?

Answer 8

Perfect knowledge is a theoretical concept which occurs when all consumers in a market are fully aware of price, quantity available and other relevant information for all products when making buying decisions.

Question 9

What is market power?

Answer 9

Market power is the ability of a firm to set price above marginal cost.

Question 10

What is factor immobility?

Answer 10

Factor immobility occurs because it is difficult for factors of production to be put to alternative uses
The immobility of factors of production can result in a misallocation of resources
This leads to market failure

Question 11

What 3 factors can factor immobility occur for?

Answer 11

Labour
Capital
Land

Question 12

What factors can cause immobility of labour? (4)

Answer 12

Geographical immobility
Cost of moving
Imperfect information
Not wanting to move
occupational immobility

Question 13

what is occupational immobility?

Answer 13

Wokersare not equipped for different types of work e.g. a coal miner cannot easily transfer to become an accountant

Question 14

What factors can cause capital immobility? (2)

Answer 14

• Rapid change in technology

- Structural change in the economy

Question 15

What factors can cause immobility of land? (1)

Answer 15

-The inability to change the use of land