Explain why imperfect information can lead to market failure. Explain how the market can solve the problem of imperfect information

Under what circumstances may it be more efficient for the government to produce information instead of relying on the market?

If consumers have imperfect information they can make mistakes in purchasing decisions. If consumers are misinformed as to the quality of a product they may buy too little or too much of the product. The market can solve the problem of imperfect information by selling information and consumers should purchase information up to the point where the additional value of the information equals the additional cost of the information. Because information is essentially a public good it will be underproduced in the marketplace. It would be more efficient for the government to collect and disperse information when information is very costly for individuals to collect.

Economics

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The demand for flour is

a. inelastic because there are few substitutes for flour and it represents a large percentage of a consumer's budget b. inelastic because there are many substitutes for flour and it represents a large percentage of a consumer's budget c. inelastic because there are few substitutes for flour and it represents a small percentage of a consumer's budget d. elastic because there are no substitutes for flour and it represents a large percentage of a consumer's budget e. elastic because there are many substitutes for flour and it represents a large percentage of a consumer's budget

Economics

Answer the following statement true (T) or false (F)

1) The smaller the number of good substitutes for a product, the greater will be the price elasticity of demand for it. 2) The smaller the number of good substitutes for a product, the greater will be the price elasticity of demand for it. 3) Generally speaking, the demand for luxury goods is more price elastic than is the demand for necessities. 4) Generally speaking, the smaller the percentage of one's total budget devoted to a particular product, the more price elastic will be the demand for that product.

Economics