Information failure occurs when people have inaccurate, incomplete, uncertain or misunderstood data and so make potentially 'wrong' choices.
From pensions to computer games consoles, from investing in the stock or currency markets to ignorance about the consequences of borrowing and debt, all of us suffer from one or more information failures.
The key issue is whether the information failure is trivial or whether it has a big effect on individuals, their families and society as a whole.
There may well be a case for the government to intervene in the market in some way if information failures become serious.
Examples of information failure
Health Dangers from Processed Meats
Sausages, ham, bacon and other processed meats appear to increase the risk of dying young, a study of half a million people across Europe suggests. It concluded diets high in processed meats were linked to cardiovascular disease, cancer and early deaths. The researchers, writing in the journal BMC Medicine, said salt and chemicals used to preserve the meat may damage health.
Adapted from news reports, April 2013
For markets to work, there needs to be symmetric information i.e. consumers and producers have the same level of knowledge about the products, and they know everything there is to know about them and the effects of consuming them?
Asymmetric information occurs when somebody knows more than somebody else in the market. This can make it difficult for the two people to do business together.
Government intervention aimed at closing the information gap
Tackling Binge Drinking
The Scottish government sees cut-price drink as a major factor in widespread abuse of alcohol that results in huge social and health costs. It has introduced legislation to bring in a minimum retail price for alcohol in supermarkets of 50 pence per unit.
These programmes are really designed to change the "perceived" costs and benefits of consumption for the consumer. They don't have any direct effect on market prices, but they seek to influence "demand" and therefore output and consumption in the long run. Increasingly adverts are becoming more hard-hitting in a bid to have an effect on consumers.
Information failure - tanning salons and the long term dangers about tanning
Tim Harford tries to buy a second hand car!
Insider trading is when a person makes a stock trade after learning material, non-public information about the company
This resource comprises a complete collection of editable PowerPoint presentations that are ideal for teaching individual topics for the whole Year 1 (AS) teaching content. Each presentation has a consistent, clear and professional format and maps precisely to the Edexcel specification teaching content.