Electronic cigarettes

a) What is the information failure in the electronic cigarette market?

first of all I need to define the information failure. The information failure is a type of market failure when consumer and\or producer has inaccurate or wrong information about different things such as demand on a product\quality\externalities\etc.

In this case the information failure is presented by lack of knowledge about external benefits and costs of this good - people are told that electronic cigarettes are harmless, but this information isn't proved and even some specialists think that the information, which the customers are given, is totally opposite to the reality. One producing company even says that electronic cigarettes are good for health according to the World Health Organisation, but a man from the WHO told that the product is completely untested.

b) Does this represent asymmetric information in the market?

Asymmetric information, another type of market failure, occurs when a part of consumers or traders have more accurate information than the others. I think we can say that it's also an asymmetric information about this product, because consumers do not know anything about negative externalities of the product, but producers (or creators) definately know more.

c) What is the outcome in the free market of this informatio failure?

People are not aware of negative externalities of this good, they think it will help them to smoke in public places, because it isn't said in the law tha electronic cigarettes mustn't be smoked in public places. So the demand on the product is really high even though the price is high. The government can intervere, but for now it does nothing. The World Health Organisation wants to check this product on harmfullness.

d) What actions could government take to reduce/eliminate the market failure?

Prohobit any type of cigarettes in public places.

or..

Make a full research on all the new things like this product in market to avoid negative externalities which will definately cause market failure.