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 firms and consumers have equal information about a good/service

information gap (asymmetric information) = when firms and consumers have unequal information about a good/service

information gaps cause irrational decision making, which causes externalitie, which causes market failure

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

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