Information failure (OCR A-Level Economics): Flashcards
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13 cards from this deck
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Practise the cards
13 cards from this deck
Information failure
Information failure
Parties lack access to same info in transactions, leading to suboptimal decisions
Asymmetric information
Asymmetric information
One party has more/better info than the other in transaction
Moral hazard
Moral hazard
Party takes risks without bearing full consequences of actions
Merit goods
Merit goods
Under-consumed if left to market; benefits underestimated
Demerit goods
Demerit goods
Over-consumed if left to market; costs underestimated
Timing of adverse selection
Timing of adverse selection
Before a transaction occurs
Timing of moral hazard
Timing of moral hazard
After a transaction
Examples of merit goods
Examples of merit goods
Education and healthcare
Examples of demerit goods
Examples of demerit goods
Tobacco and excessive alcohol consumption
Gov intervention for merit goods
Gov intervention for merit goods
Subsidise or provide them to maximise societal welfare
Gov intervention for demerit goods
Gov intervention for demerit goods
Impose taxes, regulations, or bans to reduce consumption
Market for lemons
Market for lemons
Used car market where info asymmetry drives out quality cars
Info as public good characteristics
Info as public good characteristics
Non-excludable and non-rivalrous