Information Gaps

Question 1

What is an information gap and what can it lead to?

Answer 1

Information gap- either consumer, producer or government ✖️ have access to info needed to make rational decision
— -> market failure when non-rational decision made

Question 2

What is perfect information?

Answer 2

Perfect Information- buyer &/or seller has complete understanding of quality & nature of 🚘/🧹

Question 3

What is symmetric information?

Answer 3

Symmetric information- buyers & sellers have equal amounts of knowledge about 🚘/🧹
- efficient allocation of resources- best price, quality 🚘/🧹 bought

Question 4

What is imperfect information?

Answer 4

Imperfect information- buyer &/or seller lack complete understanding of quality & nature of 🚘/🧹

Question 5

What is an example of imperfect information?

Answer 5

EXAMPLE- pension scheme- ppl ✖️ make sufficient payments to pension-> poverty in old age- SOLUTION = government intervention- compulsory for workers to contribute to National Insurance scheme

Question 6

What is asymmetric information and what can it lead to?

Answer 6

Asymmetric information- buyer or seller has ⬆️ info about 🚘/🧹 than the other
-> misallocation of resources- ✖️ best price, quality 🚘/🧹 bought

Question 7

What is an example of a producer having more knowledge than the consumer in an asymmetrical information situation?

Answer 7

PRODUCER ⬆️ KNOWLEDGE EXAMPLE- second-🖐 🚘 salesman 👨‍💼- ⬆️ knowledge about 🚘 history-> consumer paying ⬆️ 💵- SOLUTION = inspection schemes by motoring organisations e.g. Automobile Association

Question 8

What is an example of a consumer having more knowledge than the producer in an asymmetrical information situation?

Answer 8

CONSUMER ⬆️ KNOWLEDGE EXAMPLE- insurance policy- consumer hides info about himself e.g. bad health 🚬 , risky lifestyle etc -> cheap insurance-> loss for company- SOLUTION = watchdog body to investigate & prosecute fraudulent insurance claims