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4122 AQA Economics Consumer Behaviour Imperfect Information
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In this video, Geoff explains how imperfect information and asymmetric information cause market failures where consumers lack complete data to make fully informed rational choices. • #aqaeconomics #microeconomics #asymmetricinformation • TIMESTAMPS • 0:00 - Introduction • 0:43 - Why information is significant for consumers • 1:38 - Examples of information gaps • 3:08 - Asymmetric information defined • 4:10 - Examples of asymmetric information • 5:34 - How imperfect information leads to problems • 6:24 - The market for lemons explained • 8:14 - Overcoming information problems • 9:44 - Role of government in improving information • 11:04 - Information failure is inevitable • 12:00 - Bounded rationality and use of heuristics • VIDEO KEY POINTS • Imperfect information prevents rational decision making and causes market failures. • Examples are complex products like cars and lack of knowledge about addictions. • Asymmetric information is an imbalance where one party knows more, like a used car salesman knowing defects. This disadvantages the less informed. • Consumers may overestimate benefits or underestimate costs with imperfect information, shifting demand and price. • Adverse selection occurs in the market for lemons (used cars) where sellers know more than buyers, resulting in low quality products. • Sellers can provide service histories, warranties and cooling off periods to build trust. * Governments mandate health warnings and industry standards. • *B ounded rationality limits optimal choices. Consumers use heuristics or mental shortcuts like familiar brands. • KEY TERMS • Imperfect information • Asymmetric information • Market for lemons • Bounded rationality • Heuristics • Adverse selection • Moral hazard • Principal-agent problem • Information economics
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