Syllabus: Pearson - AS Level Economics
Module: 1.3 Market Failure
Lesson: 1.3.4 Information Gaps

Introduction

This article supports delivery of Pearson Edexcel AS Level Economics A, specifically Theme 1: Introduction to Markets and Market Failure. Within this, section 1.3.4 focuses on information gaps—a fundamental cause of market failure. It’s a vital topic not just for meeting assessment requirements, but for helping students make sense of real-world challenges like health misinformation, financial decisions, and even climate change debates.

The content ties directly to the Pearson specification’s requirement for students to “understand how imperfect market information may lead to a misallocation of resources” and the distinction between symmetric and asymmetric information. It also underpins many evaluative discussions on government intervention.

Key Concepts

The syllabus covers the following key learning points:

• Symmetric vs. Asymmetric Information:
  Symmetric information exists when all participants in a market have access to the same information. In contrast, asymmetric information arises when one party knows more than the other—often the seller over the buyer.

• Causes of Information Gaps:
  These may stem from complexity, misinformation, lack of education, or the cost of obtaining reliable data. For example, understanding mortgage contracts or nutritional information can be challenging for consumers.

• Impact on Resource Allocation:
  When information is lacking or unevenly distributed, markets may fail to allocate resources efficiently. This can lead to overconsumption (e.g., of sugary drinks) or underconsumption (e.g., of vaccines or education).

• Government Responses:
  Provision of information, regulation, and even direct provision of services can be used to reduce information gaps and correct misallocations.

Real-World Relevance

Information gaps are at the heart of some of the most pressing policy issues. A few examples:

• Used Car Market (“The Market for Lemons”):
  George Akerlof’s classic example shows how asymmetric information can lead to market collapse. If buyers can’t distinguish between good and bad cars, they’ll only pay average prices, driving out quality sellers.

• The Pensions and Savings Sector:
  Many consumers don’t understand pension products, leading to poor uptake or bad investment choices—something the Financial Conduct Authority (FCA) regularly addresses through campaigns and regulatory interventions.

• Health Campaigns and COVID-19:
  Misinformation during the pandemic revealed how critical information symmetry is to public health outcomes. Governments had to step in with clearer communication and, in some cases, regulation of social media platforms.

How It’s Assessed

Students can expect to engage with this topic through data interpretation, evaluation, and application questions, often tied to current events.

• Command words to focus on:
  Explain, analyse, evaluate, discuss, assess.

• Typical question types:

  • Explain why information failure may lead to market failure.

  • Evaluate government responses to information gaps in a specific sector.

  • Analyse the impact of asymmetric information in healthcare or financial markets.

• Mark schemes reward:
  Clear definitions, real-world examples, use of diagrams (where appropriate), and balanced evaluation of policy effectiveness.

Enterprise Skills Integration

This topic builds real-world thinking and key enterprise skills such as:

• Decision-making:
  Analysing why individuals or firms may make suboptimal choices due to lack of information helps students consider how to make better decisions themselves.

• Problem-solving:
  Exploring how government or business could design better systems for sharing information encourages lateral thinking.

• Critical thinking:
  Comparing policy tools—like nudges vs. regulation—helps students weigh trade-offs, a crucial skill in both economics and enterprise.

Careers Links

This content supports Gatsby Benchmarks 4, 5 and 6 by connecting classroom learning to real workplace challenges.

• Relevant roles:

  • Financial adviser (interpreting complex information for clients)

  • Public policy analyst (designing interventions for market failures)

  • Healthcare administrator (improving patient decision-making through better information)

• Pathways:
  Economics, finance, public policy, behavioural science, marketing—sectors where understanding information asymmetry is a must.

• In the workplace:
  Many careers demand the ability to navigate information gaps. Whether it’s advising a client, selling a product, or designing a public campaign, the ability to spot when information is missing—and how to fill that gap—is key.

Teaching Notes

Common pitfalls:

• Students often confuse asymmetric information with lack of information. Clarify that the asymmetry is about one party having more or better information than the other.

• There’s a tendency to default to ‘the government should intervene’ without evaluating the type of intervention or its drawbacks.

Teaching tips:

• Use simulations or role-play (e.g., used car market activity) to help students experience how information asymmetry plays out.

• Incorporate current case studies—such as pension auto-enrolment, label laws on food packaging, or financial advice regulation.

• Encourage students to identify examples from their own lives—buying tech, choosing a mobile contract, etc.

Extension activities:

• Research task: Compare how two different countries deal with information gaps in healthcare.

• Debate: “Should social media companies be legally responsible for tackling misinformation?”