1.3.4 - Information gaps

• Symmetric information occurs where buyers and sellers have potential access to the same information; this is perfect information
• Asymmetric information is when one party has superior knowledge compared to another. Usually, the seller has more information than the buyer and this means they can take advantage of the other party’s lack of knowledge, by charging them a higher price.
• Information gaps lead to market failure as there is a misallocation of resources because people do not buy things that maximise their welfare. It means that consumer demand for a good or producer supply of a good may be too high or too low, and thus price and quantity are not at the social optimum position
• Most advertising leads to information gaps as it is designed to change attitudes of the consumers to encourage them to buy the good.