INFORMATIO

N FAILURE
LEO&JOJO
INFORMATION
FAILURE
• Information failure is a type of market failure where individuals or firms
have a lack of information about economic decisions.
• Firstly, information failure exists when some, or all, of the participants in an
economic exchange do not have perfect knowledge.
• Secondly, information failure exists when one participant in an economic
exchange knows more than the other, a situation referred to as the problem
of asymmetric, or unbalanced, information.
EXAMPLES

• There are many examples of information failure

associated with economic transactions, including the
following cases:
1. The job applicant, who fails to reveal at a job interview
that they do not have a particular skill for the job.
2. The estate agent, who exploits the fact that a potential
buyer of a property has very little knowledge about the
property, and any possible problems.
3. The cigarette manufacturer, who does not inform
smokers of the true health risk of smoking.
4. The buyer of a financial product, who is unaware of the
true level of risk, as in the case of derivative products.
WHY DO INFORMATION SYSTEMS FAIL?

Poor planning. Projects that don't fall Unrealistic Lack of collaboration

within budget. performance within teams.
expectations.
ASYMMETRICAL
INFORMATION

• Asymmetric information occurs when

consumers and suppliers do not have equal
access to information
• Imagined Scenario: The big mac hamburger on
an advertisement looks rather appealing and
the meat itself looks especially juicy.
However, after you bought the real entity, it
looks...different
MERIT &
DEMERIT GOODS

• Merit goods are ones that government

considers to be beneficial, while demerit
goods could harm consumers Market failure
occurs when merit goods are under-
consumed and demerit goods are over-
consumed.
• e.g
• Merit goods: Education, Healthcare
• Demerit goods: Alcohol, drugs
How are they
related?

• The under-consumption of
merit goods or the
overconsumption of demerit
goods is caused by the lack of
information about either the
benefits or possible harms of
the good or service.
Thankyou