4). Information Gaps

• What are information failure gaps?

  Information failure gaps is a type of market failure where consumers or producers:

  > Do not have symmetric information

  > Have asymmetric information
• What can information gaps lead to?

  Without having full information about a product it is difficult for consumers and producers to make decisions regarding price, quality and other relevant factors when buying and selling. This can lead to the misallocation of resources.
• What is meant by information failure?

  Information failure occurs when people have inaccurate or incomplete data and so make potentially 'wrong' choices/decisions.
• What is symmetric information?

  Symmetric information is a situation in which all participants in a market (buyers and sellers) have the same information about market conditions.
• What asymmetric information?

  Asymmetric information is a situation in which some participants

  in a market have better information about market conditions than others.
• What are two causes of information failure?

  • Unbalanced knowledge: i.e. when the buyer knows more than the seller, or the seller knows more than the buyer
  • Price information: When consumers are unable to quickly / cheaply find sufficient information on the best prices for different products.
• What is the concept of Adverse Selection?

  Refers to a situation where either buyer or seller has some information on a product that the other party is not aware of. Adverse selection is a common thing in the insurance industry, capital markets, and in most marketplaces.
• What is the concept of 'Moral Hazard'?

  The concept of 'Moral Hazard' refers to the increased risk-taking behaviour of individuals or institutions when they feel protected from the negative consequences of their actions / new behaviour.