Introduction to information failure

Market failure occurs whenever the price mecahnism fails to allocate resources effientiently and euitably an usually, the government needs to take action and provide non-market mechanism to allocate scarce resource.

Another way in which markets can fail due to ineffiency in the allocation of resources, besides externalities, would be information failure.

Informatin failure occurs when consumers do not get the right informatin or lack the relevant information on the benefits or harm that they are likely to receive from the consumption of the good. Information failure may also be a situation whereby one party in the market has more information than the other, leading to asymetric information. this would then cause an inappropriate amount of the products to be consumed and produced, leading to ineffiency.


Information failure can exists in everyday life:


Merit goods:

• education, vaccination, vitamins, healty diets, exercise etc....people might not be aware of the true benefits of such activities and might be consuming too little of such goods

Demerit goods:

• people who smoke, drink, gamble, steal, rob, consume drugs etc.........people might not be aware about the true harm of such vices and might consume too much

Asymmetics information(when one side has more info then the other)

• Insurance: the consumer knows more about his own ailments can compared to the insurance agent. people with more illnesses are then more likely to buy insurance



• 2nd hand car market: sellers know more about the quality of the car as compared to the buyer. the buyer might be deceived into buying cars that are of low quality
  
  
• slimming centres: side effects of the programms are not made known to the consumerer

Kimbo:)

Kimberley:)