Economics - Asymmetric Information

[atar90please]

Does any one know a discretionary policy adopted by the government to resolve the issue of asymmetric information. I know that the establishment of watchdog organisations such as the ACCC, greater access to the internet and even conducting an educational campaign to inform buyers are strategies that can be put in place to rectify the issue but can anyone give me a specific policy that was utilized within Australia.

Also could anyone provide a response to the following question:

1) How is allocative efficiency affected in a capitalist economy?

I don't remember the specific wording, but a brief overview of what a capitalist economy is and how allocative efficiency may be worsened and positively manipulated is required.

Thanks

[Wu]

You shouldn't be asked for any discretionary policies. Just stating the examples that you gave is enough. You can also add: compulsory food labeling laws, used car sales permit/licence and the ACCC who are also in charge of making sure that no one on the share market has inside information.

Capitalist economy - the private sector (businesses and households) owns all of the resources. As income is distributed unequally, there is an incentive to work harder in order to earn more.
Socialist economy - the government/state owns all of the resources. Think of North Korea (or in the past, China and Russia). Everyone receives the same level of income which means that there is no incentive to work (why bother working harder if you'll receive the same as everyone else who is slacking off).

Australia is a contemporary capitalist market system (80% of resources are owned by the private sector, 20% by the government who intervenes to prevent market failures and redistribute income).

1) How is allocative efficiency affected in a capitalist economy?

Allocative efficiency is the combination of what is produced which will best maximise living standards. In a capitalist economy, the main goal is that people work hard to earn profit and get higher wages. Let's link this to market failure. Market failure is when there is a misallocation of resources in the economy which does not improve living standards. Without government intervention, no public goods would be produced due to the free rider problem (you cannot exclude people from the product's benefit) and businesses would not make any money. Negative externalities such as pollution would also be produced as long as businesses make money.

[atar90please]

Thank you that helped a lot

[atar90please]

I found out that the fair trading act could be a valid response.