8.6 Market imperfections

• What does symmetric information mean in a market context?

  Perfect market information for consumers and producers
• How does symmetric information affect resource allocation?

  It leads to an efficient allocation of resources
• What is asymmetric information?

  Unequal knowledge between consumers and producers
• What is a consequence of asymmetric information?

  It leads to market failure
• In what scenario might consumers have more information than producers?

  In the case of insurance policies
• What is imperfect information?

  When information is missing in a market
• What happens when there is imperfect information?

  Informed decisions cannot be made
• What are the potential outcomes of imperfect information in a market?

  Misallocation of resources, incorrect pricing, and production
• How might consumers be affected by imperfect information?

  They might pay too much or too little
• How might firms be affected by imperfect information?

  They might produce the incorrect amount
• What is the relationship between asymmetric information and resource allocation?

  Asymmetric information leads to misallocation of resources
• What is the definition of market failure?

  When resources are misallocated due to information issues
• What can lead to consumers paying too much or too little?

  Imperfect information in the market
• What can lead firms to produce the incorrect amount?

  Imperfect information affecting their decisions
• What is the mobility of labour?

  The ability of workers to change jobs
• What does unemployment indicate about labour markets?

  They do not work efficiently
• What is frictional unemployment?

  Unemployment while moving between jobs
• What causes structural unemployment?

  A decline in an industry
• Why is structural unemployment considered more serious than frictional unemployment?

  It involves a mismatch of skills and jobs
• What does geographical immobility of factors of production refer to?

  Obstacles preventing movement between areas
• What does occupational immobility of factors of production refer to?

  Obstacles preventing changes in their use
• How do geographical and occupational immobility differ?

  Geographical immobility is about location, occupational is about use
• What does the basic model of monopoly suggest about prices and profits?

  Higher prices and profits may result
• How does monopoly power affect resource allocation compared to a competitive market?

  It may lead to misallocation of resources
• What is a potential consequence of monopolies charging higher prices?

  Under-consumption of the good
• What does the loss of allocative efficiency in monopolies represent?

  A form of market failure
• Why do monopolies lack the incentive to become more efficient?

  They have few or no competitors
• What is the impact of monopolies on production costs?

  Production costs are high
• What happens to consumer surplus in a monopoly market?

  There is a loss of consumer surplus
• What happens to producer surplus in a monopoly market?

  There is a gain in producer surplus