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What is Adverse Selection?

Poor-quality products or high-risk individuals remain in the market, while good- quality products or low-risk individuals exit, reducing the average quality of goods traded and potentially leading to market collapse.

What is Moral Hazard?

One party takes greater risks or behaves less responsibly because they do not bear the full consequences of their actions, often after a transaction has occurred.

What is Opportunistic Behaviour?

Individuals or firms exploit their private information for personal gain at the expense of others.

What is Consumer Exploitation?

Consumers may be misled into paying too much for a product or choosing something that does not meet their needs or expectations.

What is Inefficient Resource Allocation?

When buyers make poor choices due to lack of information, resources are allocated to less valuable or lower-quality goods, reducing overall welfare in the economy.

What is Loss of Consumer Trust?

Repeated experiences with hidden information or misleading claims can reduce consumer confidence, shrinking demand and discouraging participation in the market.

What is Greater Need for Government Intervention?

Imperfect information often necessitates regulatory action to ensure fairness and protect consumers, increasing the role and cost of government oversight in markets.

What is Rivalry?

Consumption by one reduces availability for others.

What is Non-Excludability?

There is no way to stop others from accessing the resource.

What is Collective Governance?

Governments, international organisations, civil society, and private sector actors work together to make decisions and implement policies aimed at managing public goods, common resources, and externalities in a way that promotes efficiency, equity, and sustainability.

What is Signaling?

Occurs when the informed party in a transaction takes deliberate actions to reveal their private information to the less-informed party in a credible way, helping distinguish between high-quality and low-quality goods or people.

What is Asymmetric Information?

Exists when one party in a transaction has more or better information than the other.

What is Adverse Selection (in health insurance)?

Arises when individuals with higher health risks are more likely to purchase insurance, while healthier individuals opt out, leading to a disproportionately expensive risk pool.

What is Moral Hazard (in health insurance)?

Occurs when individuals change their behaviour after becoming insured, potentially leading to overuse of medical services or reduced incentives to maintain a healthy lifestyle.

Define rational consumer choice

Refers to the decision making process based on people aking choices that result in the optimal or maximum level of benefits or utility for an individual

What is rational choice THEORY

states that decision maker use logic and reasoning to determine the right choice associated with an individual’s best self-interest

Imperfect information

Occurs when either the buyer, the seller, or both lack full knowledge needed to make an optimal decision