Show that in a market with incomplete information larger the volume of good purchased more is the gain from searching for a lower price?
Solution:
A market with incomplete information normally leads to market failure since one party has more information regarding the market than the other. For markets to thrive, an effective flow of information between the seller and the buyer is critical. The presence of imperfect information can easily cause a decline in prices or quantities of products sold. The correct price cannot be set according to the law of supply and demand. Consumers without information regarding a particular market will tend to search and perform a background check on the market looking for low prices which they will tend to quote. Consumers will be driven by the notion of buying at lower prices which will then push the prices of the market to low levels and hence allow for a larger volume of goods to be purchased.
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