Th1.3: Information Gaps 2 Flashcards
Where does symmetric information occur?
where buyers and sellers have potential access to the same information - perfect information
Why are many economic agents unable to make informed decisions?
many decisions are based on imperfect information - they suffer from an information gap
What is asymmetric information?
when one party has superior knowledge compared to another
Who usually has superior information and what do they do with it?
producers over consumers, who then take advantage of consumers’ lack of knowledge by charging them a higher price
What causes many to develop information gaps and how?
advertising as it is designed to change attitudes of consumers to encourage them to buy the good - think benefits are greater than they actually are
What is battling information gaps and how?
technology as people can get more information
How do information gaps lead to market failure?
there is a misallocation of resources because people do not buy things that maximise their welfare
Why do information gaps mean markets are not at the social optimum position?
consumer demand for a good or producer supply of a good may be too high or low, therefore price and quantity are not at the social optimum
Give two examples of information gaps
drugs - people do not see the long term effects
pensions - young people don’t see long term benefit
What is the principal agent problem?
when the goals of the principle (person who gains/loses from decision) are different from the agents (those making decision on behalf of principle)
Give an example of the principle-agent problem
children in education - don’t see long term benefits therefore aren’t as willing
