a) Information gaps

a) the distinction between symmetric and asymmetric information

b) how imperfect market information may lead to a misallocation of resources

perfect information/symmetric information = when producers and consumers have equal information about a good or service

information gap/asymmetric information = when producers and consumers have unequal information about a good or service

• causes irrational decision making → causes externalities → causes market failure

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

  • goods and services that produce negative externalities → over-consumed or over-produced

  • market failure