a) What is the information failure in the electronic cigarette market?
At first we should know what does information failure mean.
Information failure is a type of marker failure when consumer or
producer has wrong information about product such as quality,
negative or positive effect of a product, demand on product etc.
Producers of this cigarettes says that this product absolutely
safe and it will not affect on health of smokers but specialists
in The World Health Organisation said that this information can't
be true because it wasn't tested and proved.
So the main problem of this electronic cigarettes is a lack of
information about external costs or benefits.
b) Does this represent asymmetric information in the market?
Asymmetric information is another type of market failure.
It happens when a part of consumers or traders have
more correct information than the others.
In this case electronic cigarettes can be assymetric information
in the market because consumers don't know real information
about this product but producers definetly know more.
c) What is the outcome in the free market of this information failure?
People buy this product because they think it will help them to stop
smoking usual cigarettes and also they think that electronic cigarettes
are less harmful then usual cigarettes. Smokers can smoke electronic
cigarettes in public places because it is not against the law.
So that is why demand on electronic cigarettes is high even if price is
high as well. If The World Health Organisation test it and find something
dangerous for health demand for this product will be lower.
d) What actions could government take to reduce/eliminate the market failure?
I think that government should test every new products such as electronic
cigarettes and it will not be an information failure.
Also they can ban smoking any types of cigarettes in public places.
2 comments:
As there is a huge demand for Electronic Cigarettes, there are many manufactures who have started making these electronic cigarettes.
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