Information failure
Definition. Information failure is a type of market failure that occurs when buyers or sellers lack full information needed to make rational decisions, leading to a misallocation of resources. It is closely linked to asymmetric information, where one party in a transaction knows more than the other.
It can cause goods to be over or under consumed, as with merit and demerit goods, because individuals misjudge the true private benefits or costs of their choices.
This term belongs to Asymmetric Information in A Level Economics. Read the full chapter for the diagrams, worked examples and exam technique.
Want to use information failure for marks in the exam? Learn it in class or message the team.