Today we will study the concept of asymmetric information. This occurs when one party to a transaction has more information than the other party. Typically, this leads to inefficient outcomes (market failure). Click this link to download a PowerPoint presentation on the topic (Chapter 22 Notes Page).
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Learning Target
Analyze the ways in which incentives influence what is produced and distributed in a market system.
Evaluate the extent to which competition among sellers and among buyers exists in specific markets.
Describe the consequences of competition in specific markets.
Criteria for Success
I will be able to use ideas related to market equilibrium and elasticities to analyze economic problems.
I will be able to demonstrate this understanding using a graph of the aforementioned model.
Assignments
Read Krugman (Pages 761-762) and watch the following videos. The videos are important as the text is not great on this topic.
Formative Assessment (MCQ's): You will take a formal assessment during class. The assessment will consist of multiple-choice questions and one FRQ from an old AP Exam. Doing the problem of the day and ensuring that you understand it will help you prepare for today's formative assessment and help to ensure that you understand the concepts in this lesson.
Problem of the Day
Define asymmetric information.
Explain how asymmetric information leads to market failure in the following markets.
Used cars (draw a graph to explain this)
Health insurance
The labor market (draw a graph to explain this)