Sch. of Information Management & Systems.
101:
Information Systems.
Spr 1997.
Michael Buckland
.
ECONOMICS OF INFORMATION
Latent demand: Demand for service that emerges as service becomes
more accessible or attractive.
Elasticity of demand is when the amount of demand is
sensitive to the price. Demand sensitive to changes
in price is said to be elastic: Reduce the price and
demand increases: Latent demand emerges and demand
is attracted away from other goods and services.
Demand little affected by changes in price is
inelastic.
Price is usual thought of in monetary terms, the exchange
value, but remember Adam Smith's definition:
"The real price of everything, what everything really
costs to the man who wants to acquire it, is the toil and
trouble of acquiring it." [Text pp.128-132].
Opportunity cost: What you could have had or done instead.
The costs of making things are usual composed
of two elements: A fixed cost associated with becoming able to
do, make, or perform whatever it is (e.g.
acquiring equipment, cooking equipment) and a variable cost that
depends on the number made (e.g. acquiring
the ingredients). The marginal cost (the cost of making just one
more) always includes the variable cost but
the fixed cost may remain unchanged. Hence marginal costs tend
to be lower than average costs.
Average cost: Total costs (fixed costs + variable costs)
divided by the amount done (= unit cost).
Economies of scale: When marginal cost is lower than average
cost, making / doing more of the same
results in lower unit costs.
Economies of scope: When it is economical to combine two
different but related activities. This is common
in information services where data once acquired, esp. in
electronic form, can be used to generate multiple
products.
Price, scarcity and information [Text 133 & 135]:
1. Knowledge can often be spread at little or no expense, e.g. rumors.
2. Generally it is in everyone's best interests for everyone
to be knowledgeable. So the dissemination of
information / knowledge has characteristics of a "public good".
3. But there may be a burdensome real price in time, effort, or other
expense in becoming informed. (This
is not the same as scarcity, the usual determinant of the price
of commodities).
4. It may be possible and worthwhile to pay someone else
for service that would reduce the real price of
becoming informed.
5. Contrary to #2, there can be situations (warfare, trade,
politics, etc.) in which there are advantages in the
ignorance of others. These situation arise when there is competition,
information is instrumental (useful for
doing something), and scarce. Hence military secrets and trade secrets.
6. Expert knowledge is naturally scarce when expensive to acquire
and/or restricted. Expert knowledge and
proprietary information are assets. The general dissemination
of knowledge is a public good.
Money can be made through publication and "value-adding",
i.e. making service better in some way: faster,
easier, more convenient,...
(Revised April 2, 1997.)