Information failure is when one party has more information than the other party.
Asymmetric information - one party has more information than the other
Information gaps - when there is a lack of information
Misinformation- when they have the wrong information
Information failure is when market failure happens because of
asymmetric information, information gaps or misinformation.
Market failure is when there is a misallocation of resources
One example of misinformation failure in a market is that
consumers don't fully know how much electric cars benefit the
environment and if they knew the correct information then we
would be consuming at MPB (full info). On the diagram, we
currently consume at Q-P on the curve MPB due to the fact they
don't have enough or the correct information within the market
where if we had full information, they would be consuming at
Q1-P1 on the curve MPB (full info). This is where the ideal
amount of consumption is. This shows that there is
underconsumption and the correct point of consumption is at Q1, and that there is market failure
from Q to Q1. This means that the government will intervene in the market and provide
information provision where consumers will now have more information within the market. This
is shown on the diagram as when the government provides information we consume from Q to
Q2 and P to P2. Therefore, market failure has been corrected by government information
provision.
eval : however, the government hasnt fully corrected the market as we are under consuming as
if we had the full correct information we would be consuming at MPB (full info) shown on the
diagram.
Asymmetric information - one party has more information than the other
Information gaps - when there is a lack of information
Misinformation- when they have the wrong information
Information failure is when market failure happens because of
asymmetric information, information gaps or misinformation.
Market failure is when there is a misallocation of resources
One example of misinformation failure in a market is that
consumers don't fully know how much electric cars benefit the
environment and if they knew the correct information then we
would be consuming at MPB (full info). On the diagram, we
currently consume at Q-P on the curve MPB due to the fact they
don't have enough or the correct information within the market
where if we had full information, they would be consuming at
Q1-P1 on the curve MPB (full info). This is where the ideal
amount of consumption is. This shows that there is
underconsumption and the correct point of consumption is at Q1, and that there is market failure
from Q to Q1. This means that the government will intervene in the market and provide
information provision where consumers will now have more information within the market. This
is shown on the diagram as when the government provides information we consume from Q to
Q2 and P to P2. Therefore, market failure has been corrected by government information
provision.
eval : however, the government hasnt fully corrected the market as we are under consuming as
if we had the full correct information we would be consuming at MPB (full info) shown on the
diagram.
