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Homework answers / question archive / Information goods, such as books and video games, have three central properties that can lead to market failures: a) They are characterized by scale economies

Information goods, such as books and video games, have three central properties that can lead to market failures: a) They are characterized by scale economies

Economics

Information goods, such as books and video games, have three central properties that can lead to market failures: a) They are characterized by scale economies. b) They exhibit experience good characteristics. c) They exhibit public good characteristics. i. Briefly explain each property. ii. Using a specific example, discuss existing solutions that address market failures that arise from these properties.

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i)

- Information failure is a sort of market failure where people or firms have an absence of information about economic choices. There are various kinds of information failure. Information asymmetries can be where one party approaches information that another gathering doesn't. For instance, the dealer of a vehicle may realize it has some issue, however the purchaser may not know.

- They are characterized by scale economies- this menans that these goods are produced in bulk for e.g. books , music CD’s etc., and provide value to seller for long period of time if they continue to sale however the buyers may loose interest after some time

- They exhibit experience good characteristics.- This is true because such values have perceived values and each buyer may value such goods differently.

- They exhibit public good characteristics- This means such goods are widely known in the market and there is some history and anchoring for such goods while deciding the pricing and value information.

ii)

- Failure to uncover information. In numerous economic exchanges, specialists may not make total honesty. For instance, while applying for medical coverage, you may neglect to advise the safety net provider about hereditary qualities or your present sick wellbeing. When buying budgetary resources, the purchaser may not know about the danger in question. This was an issue in the period before the credit crunch. This prompts information asymmetries

- Trouble in assessing expenses and advantages. It is frequently hard to know about social expenses of merchandise. Bookkeeping costs are generally simple to know. Yet, with regards to realizing more impalpable outer costs, it gets hard to put a precise figure. For instance, in the event that we take delivering vitality from coal fueled station, the private expenses to the firm can be estimated as far as work costs, expenses of coal. Yet, the outer expenses from delivering CO2 into the climate are exceptionally hard to precisely gauge. It requires assessments of the financial expense of contamination both now and later on.

- Also Moral Hazard happens when people change their conduct due to specific assurances.

- For instance, a insurance firm might be eager to offer protection against a bicycle being taken. Nonetheless, the firm may not understand that through contribution protection, it changes shopper conduct and, in the wake of picking up protection, the buyer takes less consideration to secure it. Subsequently, the insurance agency misses out in light of the fact that it is bound to pay out than recently anticipated. However Insurance companies can address such issues with the help of past data , market practices and various valuation models.