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Provide a rationale for government provision of information.

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yaga49 | Valedictorian

Posted May 5, 2013 at 10:22 AM via web

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Provide a rationale for government provision of information.

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pohnpei397 | College Teacher | (Level 3) Distinguished Educator

Posted May 5, 2013 at 12:55 PM (Answer #1)

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The main argument that can be made to support the idea of government provision of information is that consumers are often unable to get or truly understand the information that they need to make good choices.  Because of this, there can be serious losses in benefits due to deadweight loss.  By providing people with the information, the government can increase allocative efficiency.

One assumption of the market system is that consumers should have perfect information.  This helps them to understand how good a product is and how much benefit it would bring to them.  This helps them understand how much they should pay for it because they know how much it benefits them.  The problem is that people often do not know how much good a product will do them.  Often, this is because the makers of the product make it sound much better than it really is.  Thus, consumers often overpay for things and end up with deadweight loss.

If the government provides information, this problem can be reduced.  When the problem is reduced, economic efficiency increases.  In this way, the government intervention actually ends up increasing economic efficiency.

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