A. Choose a passage from the reading that you found particularity interesting. Why was it interesting?
Personally, the idea that people are so lazy that they do not seek optimal quality for low prices even with the advancement of the internet. The other interesting aspect of the chapter is that the internet has made consumers far more aware of their purchases. I would have thought that in a market with imperfect information, the consumer is more suspicious of the quality of the truncation's goods. However, the internet has heightened transaction quality awareness. I suppose information flow has a direct link to transaction quality awareness.
B. What does the author mean by transactions costs? Give examples.
Transaction costs according to the author are the trade-offs the consumer and sellers face when conducting a business deal. For the consumer, the transaction costs are time, effort, and money. Transactions require time for both parties, and if the consumer's desired requirements are not met they either veto the transaction or search elsewhere. Searching elsewhere requires much time and energy (effort) especially if information flow is lacking. Moreover, in an incoherent market, the consumer loses the most money. In the case of the seller, the transaction cost would be if the consumer vetoes the transaction because the price and quality are not to the consumer's preferences.
C. Simple economic models often assume perfect information (everyone knows everything, everywhere). What effects arise from imperfect information? Who gains and who loses when information is unevenly distributed?
According to the McMillan's text, an imperfect flow of information leads to small separate monopolies throughout a market. In other words, if the shop owners do not share price informations, the dispersion of cost for a specific item is broad. (The price of the item is to the seller's decision.)
Moreover, if the consumer does not give up (because prices are too high) then they will hardly search for an optimum solution. Why do consumers not spend time to search for better prices? Because searching involves time, money, and effort. Consumers would rather allocate the three to something they perceive to be more fruitful.
Overall, the consumer can lose a substantial amount of money and deals that are mutually beneficial for both consumer and seller fail because both parties will not meet. The consumer is usually to lose more than the seller, who is highly experienced in bargaining.
Personally, the idea that people are so lazy that they do not seek optimal quality for low prices even with the advancement of the internet. The other interesting aspect of the chapter is that the internet has made consumers far more aware of their purchases. I would have thought that in a market with imperfect information, the consumer is more suspicious of the quality of the truncation's goods. However, the internet has heightened transaction quality awareness. I suppose information flow has a direct link to transaction quality awareness.
B. What does the author mean by transactions costs? Give examples.
Transaction costs according to the author are the trade-offs the consumer and sellers face when conducting a business deal. For the consumer, the transaction costs are time, effort, and money. Transactions require time for both parties, and if the consumer's desired requirements are not met they either veto the transaction or search elsewhere. Searching elsewhere requires much time and energy (effort) especially if information flow is lacking. Moreover, in an incoherent market, the consumer loses the most money. In the case of the seller, the transaction cost would be if the consumer vetoes the transaction because the price and quality are not to the consumer's preferences.
C. Simple economic models often assume perfect information (everyone knows everything, everywhere). What effects arise from imperfect information? Who gains and who loses when information is unevenly distributed?
According to the McMillan's text, an imperfect flow of information leads to small separate monopolies throughout a market. In other words, if the shop owners do not share price informations, the dispersion of cost for a specific item is broad. (The price of the item is to the seller's decision.)
Moreover, if the consumer does not give up (because prices are too high) then they will hardly search for an optimum solution. Why do consumers not spend time to search for better prices? Because searching involves time, money, and effort. Consumers would rather allocate the three to something they perceive to be more fruitful.
Overall, the consumer can lose a substantial amount of money and deals that are mutually beneficial for both consumer and seller fail because both parties will not meet. The consumer is usually to lose more than the seller, who is highly experienced in bargaining.
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