1.3.4 Information gaps

SYMMETRIC INFO

• occurs where buyers and sellers have potential access to the same info- perfect info

• but many decisions are based on imperfect info and so economic agents are unable to make an informed decision- they suffer from an info gap

ASYMMETRIC INFO

• when one party has superior knowledge compared to another

• Usually, the seller has more info than the buyer and this means they can take advantage of the other party's lack of knowledge

ADVERTISING

• Most advertising leads to info gaps as it is designed to change attitudes of the consumers to encourage them to buy the good

• could cause them to think the benefits are greater than they actually are

TECHNOLOGY

• Increase in tech mean info gaps are on the decline as people can get more info

MARKET FAILURE

• Info gaps lead to market failure as there’s a misallocation of resources because people do not buy things that maximise their welfare

• It means that consumer demand for a good or producer supply of a good may be too high or too low, and thus price and quantity are not at the social optimum position

• Economic agents are unable to make rational decisions due to the information gap

INFO GAPS- EXAMPLES

• drugs- where users do not see the long term problems

• pensions- where young people do not see the long term benefits of paying into their pension scheme

• financial services- where the suppliers have more info than the consumers so abuse their customers for their own benefit (moral hazard)