Unit 2.10 - Market Failure: Asymmetric Information [HL only]
What you need to know and understand:
Key concepts:
Concepts to understand:
- Asymmetric information
- Adverse selection
- Moral hazard
- Responses to asymmetric information
- Government responses: legislation and regulation, provision of information
- Private responses: signalling and screening
Key concepts:
- Scarcity
- Choice
- Efficiency
- Equity
- Economic well-being
- Sustainability
- Change
- Interdependence
- Intervention
Concepts to understand:
- The market mechanism may result in socially undesirable outcomes that do not achieve efficiency, environmental sustainability and/or equity.
- Market failure, resulting in allocative inefficiency and welfare loss.
- Resource overuse, resulting in challenges to environmental sustainability.
- Inequity, resulting in inequalities.
- Governments have policy tools which can affect market outcomes, and government intervention is effective, to varying degrees, in different real-world markets.