Market imperfections

• What does symmetric information mean in a market context?

  It means that consumers and producers have perfect market information to make their decisions.
• How does symmetric information affect resource allocation?


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

  It is when there is unequal knowledge between consumers and producers.
• Give an example of asymmetric information in a market.

  A car dealer knowing about a fault with the car that the consumer is unaware of.
• What can result from asymmetric information?

  It can lead to a misallocation of resources.
• What is imperfect information?

  It is when information is missing, preventing informed decisions.
• How does imperfect information affect consumers and firms?

  Consumers might pay too much or too little, and firms might produce the incorrect amount.
• How might monopolies exploit consumers?


  By charging them more than they need to.
• What is the principal-agent problem?

  It is when the agent makes decisions for the principal but acts in their own interests.
• Give an example of the principal-agent problem.


  Shareholders and managers having different objectives that might conflict.
• How can information be made more widely available?

  Through advertising or government intervention.
• How could the harmful effects of smoking be made public?

  Through adverts and messages on cigarette boxes.
• What does the mobility of labor refer to?


  The ability of workers to change between jobs.
• What does unemployment indicate about labor markets?

  It indicates that labor markets do not work efficiently.
• What is frictional unemployment?

  It exists while people move between jobs and search for new ones.
• What is structural unemployment?


  It occurs when there is a decline in an industry, leading to a mismatch of skills.
• What does geographical immobility of factors of production refer to?

  It refers to obstacles preventing factors of production from moving between areas.
• What are some obstacles to geographical mobility of labor?

  Family ties, financial costs of moving, and regional variations in house prices.
• What does occupational immobility of factors of production refer to?

  It refers to obstacles preventing factors of production from changing their use.
• Give an example of occupational immobility.

  Workers from the mining industry lacking transferable skills to find other work.
• What are some causes of occupational immobility?


  Insufficient education, training, and skills.
• What does the basic model of monopoly suggest?

  It suggests that higher prices and profits may result in a misallocation of resources.
• How do monopolies exploit consumers?

  By charging them higher prices.
• What is the result of under-consumption in a monopoly?


  Consumer needs and wants are not fully met.
• What is allocative efficiency?

  It is when resources are allocated in a way that maximizes consumer satisfaction.
• What happens to consumer and producer surplus in a monopoly?

  There is a loss of consumer surplus and a gain of producer surplus.
• What are the key characteristics of monopolies?

  • Higher prices and profits
  • Inefficiency leading to misallocation of resources
  • Exploitation of consumers
  • Lack of incentive to become more efficient

  
• What are the types of unemployment and their characteristics?

  • Frictional Unemployment: Temporary, while moving between jobs.
  • Structural Unemployment: Occurs due to industry decline, mismatch of skills.
  • Geographical Immobility: Obstacles preventing movement between areas.
  • Occupational Immobility: Obstacles preventing change of occupation.