Information gaps and public goods (Pack 10)

• What are the two characteristics of a public good?

  • Non-excludability: Cannot prevent others from using it
  • Non-rivalry: One person's use does not reduce availability for others E.g. Streetlights
• What are the two characteristics of a private good?

  • Excludability: Can prevent others from using it
  • Rivalry: One person's use reduces availability for others
  • E.g. Healthcare
• Why are public goods underprovided in the free market?

  Firms find it unprofitable as the rational consumer will wait till the good is provided for free so free riders benefit from the good without paying
• What is the definition of 'information gap'?

  Unequal access to information among parties
• What does 'asymmetric information' mean?

  One party has more information than another
• What are four possible causes of information gaps?


  1. Misleading information
  2. Complexity of information
  3. Limited access to information
  4. Addiction
• What is an example of asymmetric information?

  A seller knows product defects, buyer does not
• How can information gaps lead to market failure?

  They can cause over or under consumption
• Give an example of how information gaps can lead to over consumption.

  Consumers overestimate the private benefits and the product quality and buy excessively
• Give an example of how information gaps can lead to under consumption.

  Consumers underestimate the private benefits of a beneficial product due to misinformation