Imperfect information

Question 1

Asymmetric information

Answer 1

a type of imperfect information - occurs when some parties in a transaction have more information regarding the product than others

Question 2

An assumption of perfect competition is that

Answer 2

economic agents have perfect information

Question 3

One party is likely to have more information than the other. Economic agents are therefore unable to undertake perfectly rational decision making . Therefore, free markets are likely to

Answer 3

misallocate resources (market failure)

Question 4

technology such as the internet has

Answer 4

reduced the imbalance of power between two parties

Question 5

Asymmetric information can contribute to moral hazard. Moral hazard occurs where

Answer 5

one party may choose to make decisions that are very risky because they know that another party will have to bear the burden should the risks lead to large losses rather than profits