Information Failure

Question 1

What is symmetric information?

Answer 1

Means that consumers and producers have perfect market info leading to efficient allocation of resources

Question 2

aWhat is asymmetric information?

Answer 2

Leads to market failure this is where there is unequal knowledge between consumers and producers, could lead to mis allocation of resources

Question 3

What is imperfect information?

Answer 3

When information is missing so a decision can’t be made, Leads to a misallocation of resources

Question 4

What can Assymetric information be linked with ?

Answer 4

Principal agent problem- Agent makes decisions for the principal but the agent acts in their own interests

Question 5

What can information asymmetry result in ?

Answer 5

A moral Hazard- where an individual takes in more risk than usual because they don’t bear the full cost, eg taking out car insurance

Question 6

What else is associated with information failure ?

Answer 6

Demerit goods which cause negative externalities, And also merit goods which cause positive externalities

Question 7

What is a value judgement ?

Answer 7

Makes it hard to determine what the monetary value of the externality is