Information Failure

Question 1

Asymmetric information

Answer 1

A situation in which some participants in a market have better information about market conditions than others.

Question 2

Moral hazard

Answer 2

A situation in which a person who had taken out insurance is prone to taking more risk.

Question 3

Adverse selection

Answer 3

A situation in which a person at risk is more likely to take out insurance.

Question 4

Define information failure

Answer 4

Where consumers lack the full information about the costs and / or benefits of a good and therefore, make choices that fail to achieve allocative efficiency.