Information Gaps

Question 1

What is symmetric information?

Answer 1

When buyers and sellers have access to the same information.

Question 2

What is asymmetric information?

Answer 2

When either the buyer or seller has more information than the other.

Question 3

What is an information gap?

Answer 3

When buyers or sellers are unable to find the information necessary to make a rational economic decision.

Question 4

What are the 5 things a consumer needs to know to make a rational economic decision?

Answer 4

1) Personal needs.
2) Price.
3) Previous experience of the good/service.
4) Competitors and substitutes.
5) Benefits of the good/service.

Question 5

What are 3 types of markets with information gaps?

Answer 5

1) Second-hand car market - difficult for consumers to understand the real quality of the car and any potential defects.
2) Substance abuse - many customers do not appreciate the long term effects of consumption.
3) Healthcare - a doctor will know more about the medical situation than the patient, so the patient will follow the advice of the doctor.

Question 6

How can advertising lead to asymmetric information?

Answer 6

Advertising provides consumers with the information of a product, however the main goal of advertising is to persuade consumers to buy a product, a natural bias that can result in asymmetric information.

Question 7

Who regulates the advertising industry?

Answer 7

The Advertising Standards Authority (ASA).