Information Gaps Flashcards

1
Q

What is an information gap/ imperfect information?

A

A lack of information resulting in economic agents making decisions that do not maximise welfare

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2
Q

what is incomplete information?

A

When someone doesnt have full information about the benefits or costs of their decisions.

For example: Education

Incomplete information means people aren’t informed of benefits of education which mean people underconsume education meaning market failure because consumers dont consume enough of this good

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3
Q

How does government intervene in education to prevent the market failure caused by incomplete information

A

Regulation - e.g. legally requiring students to stay in education till age 18. Information provision - e.g. providing info on the benefits of education at the British Science Festival. Subsidies - e.g. subsidising tuition fees.

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4
Q

What is asymmetric information

A

situation in which some economic agents in a market have better information about market conditions than others; when information is unequally shared between two parties

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5
Q

How does government intervene in the cigarette market to prevent the market failure caused by incomplete information?

A

Regulation - e.g. legally banning public smoking. Information provision - e.g. showing adverts on the costs of smoking. Indirect taxes - e.g. specific taxes on cigarettes

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6
Q

What are some examples of underconsumption and over consumption

A

Underconsumption:

Education
Healthy foods
Gym

Over:

Drugs
Smoking
Junk food

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7
Q

What is symmetric information?

A

When all parties know as much as each other

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8
Q

How does asymmetric information lead to market failure?

A

Assymetric information you may spend your money on a good that isnt what you expected meaning you misallocated your resources leading to market failure.

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