Micro T2 - Imperfect Information

Question 1

Consequences of consumers having imperfect information (4)

Answer 1

Unable to maxamise utility
Make wrong descision
Can under consume merit goods
Can over consume demerit goods

Question 2

What is assymetric information

Answer 2

When one party in a market (buyer or seller) has less information than the other , in relation the the exchange taking place

Question 3

Impacts of assymetric information

Answer 3

Adverse Selection
Incomplete markets

Question 4

What is adverse selection

Answer 4

Where buyers or sellers use their extra knowledge the risks of a transaction and therefore avoid them, potentially negatively affecting the other party

Question 5

What is an incomplete market

Answer 5

When the current level of supply is not enough to meet the needs and wants of consumers

Question 6

What are some examples of assymetric information

Answer 6

Car sellers knowing all about the history of the car being sold, whereas the buyers have limited information

Homeowners selling houses, but know that it gets too cold in the winter or neighbours are too loud , where as consumers have no knowledge of this information