Imperfect information

Question 1

Define symmetric information

Answer 1

when all parties know as much as each other

Question 2

Define imperfect information or information gaps?

Answer 2

when consumers or producers lack the information needed to make an informed decision

Question 3

What is importance of information when making a decision?

Answer 3

Symmetric information can lead to an efficient allocation of resources - the consumer will have all the information needed to make an informed decision
HOWEVER,
Imperfect information (or information gaps) can lead to a misallocation of resources - consumers may make bad, uninformed decisions

Question 4

Define asymmetric information?

Answer 4

when one party knows more than another party in a transaction

Question 5

What is the significance of asymmetric information?

Answer 5

The principle agent problem. When the agent makes decisions for the principal, but the agent is inclined to act in their own interests, rather than those of the principal