1.3.4 Information gaps
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5 Terms
Symmetric information
Means that consumers and producers have perfect market information to make their decision.
Asymmetric information
When there is unequal knowledge between consumers and producers. This leads to market failure.
Examples of asymmetric information
Used car market (Lemon Problem) - Sellers know far more about cars condition than buyers leading to low quality cars being sold at higher prices
How can imperfect market information lead to a misallocation of resources
Imperfect information is where information is missing so an informed decision cannot be made which leads to a misallocation of resources because people do not buy things that maximise their welfare.
What creates information gaps
Most advertising leads to information gaps as its designed to change attitudes of the consumers to encourage them to buy the good.
