Economization of

BPS3107-KST
Information and Kisno Shinoda & Prof. Saswinadi Sasmojo,
Adelina Manurung
Technology
 Introduction
• Technology changes but economy laws do not.
• Technology is an infrastructure to store, search, retrieve, copy, filter, manipulate,
view, transmit, and receive information.
• Information is:
– Anything that can be digitized, encoded as a stream of bits (Shapiro and
Varian, 1999)
– Precisely and succinctly put as a reduction in uncertainty (Arrow, 1979)
– Something represents something new, making a measure of information the
“surprise value” of a message (Krippendorf, 1986)
– Any experience or contact that adds new meaning or somehow changes
events, lives or experiences (Low, 2000)
• Information is costly to produce but cheap to reproduce.

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 Introduction
• Knowledge is a form of capital, and technology is an application
of knowledge to work. Knowledge is cognitive information that
has been generalized and abstracted from an understanding of the
cause-and-effect relations of an event or phenomenon.
• Cognitive information is itself defined as logical and action-
selective information that is a projection of the future or that is
used for detecting and forecasting (Masuda, 1990).
• As information becomes an important and distinct input to
production, consumption and other aspects of daily life, the
activities of generating, producing, processing, transmitting,
disseminating, distributing, storing, archiving and retrieving
information constitutes an information industry
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 Introduction

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 Introduction

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 Introduction
• Using a threefold definition, information economics is a framework of
tools and concepts that enables: 1) a definition of value built on an
expanded vision of benefit, 2) a definition of cost that includes explicit
considerations of potential risk and 3) a decision-making process to
make investment decisions in a manner consistent with business
investment decisions (Parker & Benson, 1988).
• Information economics looks at the supply side of production and
investment in information infrastructure (dubbed infostructure) as well
as the demand side, as in the consumption of information goods and
services.
• The usual framework is in both microeconomics (consumer theory and
firm theory) and macroeconomics (overall economy, public policies and
the international arena)
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 Introduction
• A distinction between information and knowledge follows, no
matter how spurious it may be.
• The information economy, which will be elaborated upon shortly,
is simply one that is knowledge-based.
• Both the knowledge economy and the information economy are
associated with the digital economy as knowledge and information
are conveyed in digital form.
• Following the revolution in information and communications
technology, the emergence of the knowledge economy represents a
shift from raw materials and capital equipment to information and
knowledge as inputs for production
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 Information Economy
• The emergence of a knowledge economy is parallel to that of an
information economy.
• To be clear, an information economy is one in which information
is the core of a society’s economic needs.
• An information economy is dependent on knowledge and
information, which are becoming increasingly science-based and
applied to production (Carnoy et al., 1993).
• Because information technology is transmitted through digitized
technology, the digital economy is one in which individuals and
enterprises create wealth by applying knowledge, networked human
intelligence and effort to manufacturing, agriculture and services.
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 Information Economy
• The meaning of a digital economy will probably become more
entrenched as analogue transmission gradually gives way to digital
technology and all forms of information (visual, audio, graphic, data and
others) can be digitized.
• An information industry, as distinguished from a knowledge industry,
marks the attainment of an information-led type of industrial structure
as the first stage of change in the economic structure.
• The information industry is responsible for the production, processing,
storage and dissemination of information. It comprises the production
of computer/office machinery, communications cables and equipment,
information transmission, software, information processing services,
information retrieval services, information storage and archival services.

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 Information Society
• Parallel to a knowledge-based information economy is the emergence of
an information society. An information society is one that grows and
develops around information and brings about a flourishing state of
human creativity instead of mere affluent material consumption.
• More rigorously, the concept of an information society requires two
premises (Masuda, 1990).
– One involves the production of information values, not material
values, as the driving force behind the formation and development of
the information society.
– The other premise is that past developmental patterns of human
society can be used as historical, analogical models for future
societies.
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 Information Society
• An alternative definition of an information society is one in which the
quality of life, prospects for social change and economic development
depend increasingly on information and its exploitation (Martin, 1995).
• One step beyond an information society with an ongoing information
revolution is a broadband society, which is one where
telecommunications has become the true catalyst for change.
• There is virtually unlimited access to information, and traditional
universal telephone services will be replaced by universal multimedia
information services. In fact, instead of an information society, many
possible information societies may be spawned.

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 Information Society

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 Information Society

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 Industrial Societies vs Knowledge Societies

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 Basic Economic Principles and Concept
• The foundations of microeconomics, as applied to any economic
activity, including information technology and the media, rest on
the age-old concern of balancing scarce, limited resources with
unlimited human wants. That, essentially, is the definition of
economics: a discipline to match limited resources with efficiently
produced commodities to satisfy unlimited human wants.
• Microeconomicslooks at the economic problem from the
perspective of individual units comprised of households or
consumers (demand side) and firms or producers (supply side).
• At the macroeconomicslevel, national aggregates such as
employment, prices and overall growth are considered for the
whole economy.
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 Basic Economic Principles and Concept
• In optimizing resources, also known as inputs(or factors of
production, which traditionally include land, labour and capital),
to produce enough output(or commodities in goods and services)
to satisfy human wants, economics may also be looked at in terms
of three questions.
• Essentially, economics involves choices in terms of what goods and
services to produce, how to produce them (ie, the method or
production function) and for whom (implying the distribution of
output).

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 The Law of Demand and Supply
• Two powerful laws in microeconomics: demand and supply.
• The consumer decides what to demand based on a number of
determinants: the price of the commodity, prices of other
commodities, income, tastes, time horizon, population size and
structure, and even government policies, which affect consumption.
• Law of demand: if all other factors remain equal, the higher the
price of a good, the lower the quantity demanded.
• Law of supply: the higher the price, the higher the quantity
supplied.

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 Basic Economic Principles and Concept

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 The Law of Demand
P=a–bQ or Q=a–bP
• Q: demanded units
• P: price per unit
• a: constant value
• B: slope/gradient
Remark: a must be positive, b must be negative.
function:

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 The Law of Demand: Problem Set
• When a good prices at IDR 80/unit, the demand is 10 units and
when it costs IDR 60/unit the demand is 20. Determine the
demand function equation and draw the chart!

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 Law of Supply
P=a+bQ or Q=a+bP
• Q: demanded units
• P: price per unit
• a: constant value
• B: slope/gradient
Remark: a is either positive or negative, b must be positive.
function:

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 The Law of Supply: Problem Set
• A shop sells its good at IDR 60/unit, the supply is 20 units and
when it sells at IDR 80/unit the demand is 30. Determine the
supply function equation and draw the chart!

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 Equilibrium
• When supply and demand are equal (i.e. when the supply function
and demand function intersect) the economy is said to be
equilibrium. ( Qd = Q s or Pq = Ps)

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 Equilibrium: Problem Set
• Determine the price and quantity in the market equilibrium when
Qd = 10 – 0.6 Pd and Qs = -20 + 0.4 Ps

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 Basic Economic Principles and Concept
• The law of diminishing utility
states that as books become more
scarce, its marginal utility(the
increment in total utility with every
additional unit of books
consumed) rises while the marginal
utility of movies diminishes as
more movies are consumed.
• Mathematically, the convex curve
provides a steeper slope depicted at
the tangent Q , which denotes a
higher opportunity cost than at P.
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 Lock-in and Switching Cost
• Switching costs are the costs that a consumer incurs as a result of
changing brand, suppliers or products.
• It has effect on monetary in nature, psychological, effort and time.
• When the costs of switching from one brand of technology to an-
other are substantial, users face lock-in.
• Switching costs and lock-in are ubiquitous in information systems,
and managing these costs is very tricky for both buyers and sellers.

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 EPILOG
• Price information according to its VALUE not its COST.
• Competition among sellers of commodity information pushes
prices to ZERO.
• Information is like oyster: it has greatest value when fresh.
• Analyze and understand how much you invest in producing and
selling your information.
• If you are forced to compete in commodity market, be aggressive
but not greedy.
• Differentiate your product by personalizing the information and
price.

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 EPILOG
• Invest in collecting and analyzing data about your market, using
focus group, statistics analyses, promotions, and other marketing
techniques.
• Use the information about customers to sell the personalized
products at personalized prices.

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 THANK YOU

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