a) Information gaps

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4 Terms

1
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  • perfect information (symmetric information)


  • when firms and consumers have equal information about a good/service


2
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  • information gap (asymmetric information)


  • when firms and consumers have unequal information about a good/service


3
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  • an information gap/asymmetric information causes…


  • irrational decision making

  • externalities

  • market failure


4
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  • an information gap/asymmetric information produces externalities…


  • goods/services that produce negative externalities are over-consumed and over-produced

  • goods and services that produce positive externalities are under-consumed and under produced