Market imperfections

• Symmetric information 


  Consumers and producers have perfect market information to make their decision.
• Symmetric information leads to efficient allocation of resources.
• Asymmetric information leads to market failure.
• Asymmetric information


  When there is unequal knowledge between consumers and producers.
• Asymmetric information causes a misallocation of resources.
• Imperfect information leads to a misallocation of resources.
• Imperfect information


  When information is missing, so an informed decision cannot be made.
• Imperfect information


  Consumers might pay too much or too little, and firms might produce the incorrect amount.
• Asymmetric information can be linked with the principal-agent problem.
• How could information be made more widely available?

  Through advertising or government intervention.
• The mobility of labour


  Ability of workers to change between jobs.
• Unemployement is evidence that labour markets do not work efficiently.
• Structural unemployement


  When there is a decline in an industry => Worker skills do not match the location and skills required for the job. This is serious.
• Frictional unemployment


  May exist whilst people move between jobs and search for new ones.
• Geographical immobility


  The obstacles which prevent the factors of production moving between areas.
• Geographical immobility


  E.g. labour might find it hard to find work in different locations due to family and social ties.
• Occupational immobility


  The obstacles which prevent the factors of production changing their use; the causes include insufficient education, training, and skills.
• Occupational immobility


  E.g. collapse of the mining industry meant workers did not have transferable skills to find other work.
• The basic model of monopoly suggests that higher prices and profits and inefficiency may result in a misallocation of resources compared to the outocome in a competitive market.
• Monopolies could exploit the consumer by charging them higher prices; this means the good is under-consumed, so consumer needs and wants are not fully met. Consumers will be reluctant to buy if prices are too high.
• Under-consumption in a monopoly market is a form of market failure.
• Monopolies have no incentive to become more effcient, becasue they have few or no competitors, so production costs are high.
• Monopoly power means there is a loss in consumer surplus and a gain of producer surplus.