Imperfect Information 2.2

Question 1

What is the definition of symmetric information ?

Answer 1

Symmetric information means that consumes and producers have perfect market information to make their decision. This leads to an efficient allocation of resources

Question 2

What is imperfect information ?

Answer 2

There could be imperfect information, where information is missing, so an informed decision cannot be made
This leads to a misallocation of resources. Consumers may pay too much or too little, and firms may produce incorrect amounts

Question 3

What is asymmetric information ?

Answer 3

Asymmetric information is when there’s unequal know,edge between consumers and producers. For example, a car dealer might know about a fault with the car that the consumer is unaware of. This can lead to a missallocation of resources and market failure

Question 4

What is the principle-agent problem ?

Answer 4

The principle agent problem is a conflict of priorities between a person or group and the representative authorised to act on their behalf. For example, shareholders and managers may have different objectives which may conflict

Question 5

How can information be more widely spread ?

Answer 5

Information can be more widely available through advertising or government intervention. E.g. the harmful effects of smoking could be made through adverts on cigarette boxes