Syllabus: Pearson - Pearson - A Level Economics
Module: 1.3 Market Failure
Lesson: 1.3.4 Information Gaps
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Introduction
This lesson sits within Theme 1 of the Pearson Edexcel A Level Economics A specification, which focuses on microeconomics and the concept of market failure. Section 1.3.4 specifically tackles information gaps, one of the key types of market failure alongside externalities and the under-provision of public goods.
Understanding information gaps is essential for students to grasp why markets may not allocate resources efficiently — and why interventions may be needed. This section connects directly to both assessment preparation and a deeper, real-world understanding of how decisions are made under uncertainty.
Key Concepts
According to the Pearson Edexcel specification, students must understand:
Definition of information gaps: A situation where economic agents do not have full or accurate information, leading to potentially sub-optimal decisions.
Asymmetric information: When one party in a transaction has more or better information than the other (e.g. used car sales or health insurance markets).
Consequences of imperfect information:
Over-consumption of demerit goods (e.g. cigarettes, fast food)
Under-consumption of merit goods (e.g. education, vaccinations)
Government intervention: Methods to correct information gaps such as advertising, education, regulation, and labelling.
Students are also expected to use supply and demand diagrams to illustrate how information gaps distort market outcomes and justify interventions.
Real-World Relevance
This topic is one of the most tangible examples of economics in everyday life. Consider the following:
Health Warnings on Cigarette Packs: These are a direct government intervention to address the underestimation of long-term health risks.
Mis-selling of PPI (Payment Protection Insurance): A major financial scandal in the UK where consumers lacked understanding of what they were buying, resulting in widespread government compensation schemes.
Fast Fashion and Environmental Impact: Consumers often buy low-cost clothing without being informed about its environmental footprint, a classic case of hidden information.
Students can be encouraged to bring in news stories or advertising examples to examine how accurate, persuasive or misleading they are — turning abstract theory into tangible critique.
How It’s Assessed
Information gaps are most commonly assessed in Paper 1, focusing on microeconomic principles. Typical question styles include:
Short-answer explain (e.g. “Explain what is meant by asymmetric information.”)
Data response (e.g. analysing the impact of information gaps in provided scenarios)
Evaluation essays (e.g. “To what extent do information gaps justify government intervention in markets?”)
Command words to emphasise include:
Explain – expect definitions and examples.
Analyse – focus on cause and effect, often using diagrams.
Evaluate – balanced discussion with supported judgement, particularly around policy options.
Encourage students to practise applying their knowledge to unfamiliar contexts — a key requirement in Pearson Edexcel assessments.
Enterprise Skills Integration
Information gaps offer an ideal route into real-world decision-making and the kinds of uncertainty business leaders face. In Enterprise Skills simulations, students engage in:
Problem-solving: Choosing between marketing channels or suppliers based on limited data.
Critical thinking: Interpreting customer feedback or financial trends with incomplete insight.
Decision-making under uncertainty: Acting despite risk or ambiguity — mirroring the reality of most entrepreneurial ventures.
When students simulate running a business, they experience firsthand how missing information can influence outcomes — and learn to ask better questions as a result.
Careers Links
This topic aligns clearly with Gatsby Benchmarks 4, 5, and 6:
Benchmark 4 (Curriculum linking to careers): Explore how economists, marketers, and policy analysts rely on data to make informed decisions.
Benchmark 5 (Encounters with employers): Invite guest speakers from sectors such as health, finance, or advertising to discuss the importance of clear communication and trust.
Benchmark 6 (Workplace experience): Use virtual simulations or shadowing schemes to show how real businesses tackle information problems.
Careers where this topic is highly relevant include:
Market Research Analyst
Policy Advisor
Business Consultant
Risk Analyst
Behavioural Economist
Teaching Notes
Common misconceptions:
Students often confuse information gaps with deliberate deception — but many gaps are unintentional or due to complexity.
They may also struggle to distinguish between asymmetric and imperfect information — use examples like insurance or job interviews to clarify the difference.
Time-saving strategies:
Use pre-made case study clips or adverts as lesson starters.
Incorporate Skills Hub’s plug-and-play activities that allow quick assessment of understanding without writing-heavy tasks.
Stretch and challenge:
Ask students to evaluate whether regulation or market-based solutions (e.g. TripAdvisor reviews) are more effective in correcting information gaps.
Use flipped learning: assign reading or video content to identify examples of imperfect information for class discussion.
Cross-curricular links:
Psychology (cognitive biases, heuristics)
Media studies (advertising literacy)
Politics (policy analysis and public communication)
