imperfect info and descision making Flashcards
imperfect info can rpevent consumers making
utility amixmising descisions
information can be imperfect in what ways
lack of info
asymmertric inforamtion
lack of info is when
imformatino doesnt exost at all or isnt presented clearly
whats the problme of a lack of info
problem as a result = under or over consumption taking oplace where consumers maling irratinoal descisions
give example of lack of info causing problems
in the ocnsumption of merit and demerit goods
explain how consumption of merit good is caused by lack of info
consumer dunno how gopod consuming product is for them
therfore they under onsumer , excersise , health etc
as they lack informatino ergarding how goods products are
therefore irrational descision made as undercosnume and dont max total utilty
explain how lack of info causes overconsumptio of demerit good
not enough info out there as to how bad consuming this good is for you
e.g fast food
so omre is consumed than the utility maximising
due to a lack of info
so its a irratinoal as we consuming past point of utilty max
explain assymetric info
inof exists - even perfectly but not shared equally between two parties
show how asymetric info is problem is 2nd hand car markets
buyers always lacking info whereas as seller got all teh info about state of care
cause buyer dont have fiull informaiton
they may amke irrational descision to buy car even though wont max their utlilut
in insurance mkt - indi has full inof on how they drive dangerousluy but insurance comp ont have it
therfore its difficult ot give a price - always got incentive to lie to keep £ low therfore
lead to irraitnoal descisoin being made
price lower than should
- how does this bring in idea of morla hazard
individul taking out insurance will rake more risk as dont bear cost of that risk , insurance illl
not in the best interest of insurance / society as right person is not paying for excessive erisk being taken
