Symmetric information
Buyers and sellers have same knowledge.
Information gaps
Key definitions
Asymmetric information
One party knows more than the other.
Imperfect information
Incomplete knowledge causing poor decisions.
Market failure
Wrong quantity produced/consumed.
Used car market
Seller often knows more than buyer — 'lemons' problem.
Merit goods
Underconsumed due to information failure.
Demerit goods
Overconsumed due to information failure.
Consumer protection
Regulation and information campaigns.
Moral hazard
Behaviour changes when insured.
Adverse selection
Worst risks most likely to buy insurance.
Key concepts
Asymmetric information leads consumers to make suboptimal choices.
Government may provide information or regulate to reduce gaps.
Relevant tips
- Link information gaps to over/under consumption in evaluation.
Examples & case studies
- Used car market is classic example of information economics.