INFORMATION ECONOMICS
Over the years from the earlier years in 1970 when a significant string of economic investigation, also known as information economics has investigated the scope of the process through which markets and organizations transmit information. This topic falls under the major topic of micro-economics theory which is involved with ways in which information and information coordination affects the economy and economic decisions. Information therefore has unique characteristics which results to its influence on the economic decisions. This involves it being easy to formulate but it is as well hard to trust while it may be easy to spread but on the other hand it may be hard to control (Arnold 2006). Due to the complexity of the unique characteristics it has as well resulted to the complexity of many ordinary economic theories. The development of economic of information technology has lead to evolutional of the nature of both the economic sector and business practices through influencing the collection and data analysis. This topic explores the function of information technology in the present management of organizations and economics. It analyzes the fundamental economics of information with the impacts it has on the administration system. It further studies the consequences attributed by digitization and technology on organization and business structure as it look into the pricing, packaging and versioning of goods that are digitalized which are inclusive of software, communication services and entertainment components such as music and videos. The course also puts into consideration, the managerial influence that is brought about by social media, search, individualism, advertising and privacy. This paper therefore will base its argument of some of the sub-divisions under this course such as Moore’s Law and economic development, asymptotically free goods, network effects and asymmetric information.
Moore’s law and economic development
This term of Moore was established in 1970 by Gordon Moore who was one of the founders of Intel Company who were involved in making of chips. He thus came up with a prediction that the number of electronic constituents which would be filled up into an integrated circuit were doubling annually (Brock 2006). This was later named as the Moore’s law which is accepted even up to date. The law in the current world is appealed to describe anything that is related to high technology. The law examined more on the rapid increase in the internet since the late years of 1990, the sudden improvement in the pricing of semi-conductors, and anything electronic, the continued technical advancement in information technology technique and the technical re-package in America’s economy (Gilmer et al 2005).
Moore’s law was not only concerned with decreasing the size of transistors but also on the economy which would ensure that the price would be cut off. Continued application of the law means that the progressing rate of semiconductors firm will overcome that of the other industries (Gilmer et al 2005). Future prospects of this law is that it will provide a magnitude of exponential ability improvement and increase resulting to essential shift in communication machines, computers and networking so as to be able to handle the overgrowing digital content. The law has shifted computers into being desktops to laptops and to tablets and phones which are carried along in the pocket (Brock 2006).
The development of IBM use of the integrated circuits in creating computers, was market oriented. With economic motivation, the manufacturers are in a position to manufacture and even crowd more of the components on every single integrated circuit.
Doubling the number of elements results to the doubling of speed within the integrated circuit since the electronic constituents are closely put together and the use of smaller transistors have shorter delays especially when switching (Brock 2006). Over the years, the electronic element use has been rapidly increasing while the cost of production has been decreasing with the doubling of the product produced and also with the doubling of the elements used. The rate of success in production determines the economic limit. With more packaging of elements in the integrated circuit, the rate of failure increases. So as to achieve economic success with the increasing number of elements, the rate of fixed cost of building up a new IC manufacturing facilities are increasing (Gilmer et al 2005). The fixed cost of creating a manufacturing foundry and the energy produced by the IC has increased over time hence resulting to the increase in cost of production of new facilities and this therefore becomes an economic factor.
Network effects
Network effect is also viewed as a network externality which basically refers to the outcome that one user of a good or service has on the cost of that product to other people. Network effect is important when present as cost of a good or service is dependent on the list of other people using it (Kemper 2010). For instance, most people use Microsoft windows and telephone network thus making windows more demanded as most of the software uses the windows. This leaves most people purchasing windows while developing industries build their applications with windows within a virtuous circle. Most of the communication network uses the internet and in this the network effects occurs more. When the internet is limited, the network effects are few hence act as a strong barrier to the entry of goods and services in the market. The network effect is mostly applied to positive network externalities such as the phones.
However, there are the possibility of the negative externalities occurring where more of the users produce a product that is of a lesser cost and results to congestion. Though most people may tend to think that network effects are similar to economies of scale but this is not the case as they are different. Network effect may affect new trades as a country may decide to support and specialize on the production of a specialized product which may result in making positive effects hence making the entire industry to be more efficient (Kemper 2010). With large network effects, there is the possibility of creation of incentives which helps to develop a monopoly. This enhances the dominance of production of one type of product so as to be efficient in meeting the demand of users.
Asymptotically free goods
Asymptotically free goods are products that have no opportunity cost as they can be produced by the people at any quantity needed without any effort or with little of it. The goods are not scarce hence they are readily available. Sometimes, goods that are given out at zero prices are not necessarily asymptotically free goods since they require scarce resources (Flaschel 2010). However, ideas and works in which are produced at zero cost can be rated as free goods. For instance if an industry copies the works of other industry with zero danger of the resource running out of business then it fits to be a free good. Economists came up with another category of free goods where the goods are scarce but yet available at any given amount to anyone in nature such as air and sunlight. To some extent, asymptotically free goods are considered disruptive for instance; the government in a disruptive condition may tend to become associated with the adversary of change.
These goods are the latest economic forces where in solving of problems, labor and capital are not included but instead a research is carried out as well as development and in its completion the solution is reached and the cost of factors of production is relatively low (Flaschel 2010). The goods also raise issues between the conservatives and the liberals in the public. Liberals are those who believe that the government has a role in the preservation of the free goods since they economically encourage the researchers and the developers by providing them with direct government funds, delineating and implementing patent laws. Their support results to a better outcome of these free goods and better preservation (Flaschel 2010). Efficient pricing or cost for this operation is highly needed to prevent the cost being high above that of the marginal cost. Conservatives on the other hand advocate for private research and development as they think that the government is slow to identify and to curb this failures (Flaschel 2010). Therefore they advocate for private sector intervention in preserving the free goods which uses lower cost as they implement the use of cost-saving projects with an aim of providing their customers with the best benefits.
Asymmetric information
Information asymmetry involves the study of the decision making while transacting where either of the party has more knowledge on the market than the other. This is the situation in which there exists imperfect knowledge and results to inefficient results in the market (Indian Economic Association et al 2006). This creates a disproportion of power in the transaction which can result to market failure. Information failure results when only one side of the transaction has the perfect knowledge while the other side fails to have that knowledge. This results to misallocation of the resources where the consumers may end up overpaying or else underpaying or overproducing or under producing for firms. Markets are at their best when both parties are well informed hence an efficient transaction takes place.
Asymmetric knowledge is economically a problem since one participant in the market may end up exploiting the other participant due to their greater know-how. Asymmetric information is applied in financial markets but it is dangerous as the borrower has more knowledge on the financial state than the one lending him (Arnold 2006). Also applied in insurance where in this case, the insurer is unaware of the way the insured person will take care of the product. This is a problem, as it can result to adverse selection.
References
Flaschel, P. (2010). Topics in classical micro- and macroeconomics: Elements of a critique of neoricardian theory. (Topics in Classical Micro- and Macroeconomics.) Berlin: Springer.
Indian Economic Association., Nachane, D. M., Chatterjee, B., & Indian Economic Association. (2006). Economics of asymmetric information. New Delhi: Deep & Deep Publications.
Arnold, R. A. (2008). Economics. Mason, OH, USA: Thomson South-Western.
Brock, D. C. (2006). Understanding Moore's law: Four decades of innovation. Philadelphia, Pa: Chemical Heritage Press.
Gilmer, D. C., & Huff, H. R. (2005). High Dielectric Constant Materials. New York: Springer-Verlag Berlin Heidelberg.
Kemper, A. (2010). Valuation of network effects in software markets: A complex networks approach. Heidelberg [u.a.: Physica-Verlag.
