Chapter 19: Information Gaps
- Created by: Sin Heng
- Created on: 21-11-19 13:16
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1. Define 'asymmetric information'
Where buyers either sellers have different amounts of information than the other.
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2. What is an example of asymmetric information?
The market for second-hand items. The sellers know of the defaults in each product but consumers don't.
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3. How does asymmetric information lead to market failure?
Seller set an average price on a second-hand good. Consumers may think that the price should be lower as the good is below average (it is used), they may bargain for a lower price which the sellers may be unhappy with so they stop selling them in the market. This leads to the disappearance of the market.
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4. Define 'information failure'/'information gap'
Where buyers, sellers or both do not have the information available to make decisions.
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5. Define 'imperfect information'
Where buyers, sellers or both lack information to make informed decisions.…
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