I agree with Shapiro and Varian's statement of technology changes, economic laws do not. I would say economic principles do not change but evolve as technological advances take place and have a significant influence on shaping our modern-day economy. As the technology that surrounds us and is immersed in our daily life advances, it changes the efficiency and level of production for the most part, in a beneficial form for the consumer and the producer, but at the cost of previous economic functionality. Although there are many improvements and growth in economics, the basic principles are still heavily prominent in our modern society. I am going to focus on the following economic principles stated by Shapiro and Varian: supply and demand, and marginal cost that have evolved due to technological advancements.
The economic principle of marginal cost is continuously evolving as our world is changing with technological advances, but the primary function does not, which is, “the rate of the increased expense depends on the production” (Muir 2). In other words, marginal cost is the cost added by producing an additional unit of product or service. I decided to touch on ‘marginal cost’ first because I feel like it has been the most influenced by technological advances such as information goods. Information goods are commonly defined as “products that can be digitized, such as books, software, videos, music, telecommunications services, and more” (Choudhary 3). The scholarly articles I used that support my idea in this paragraph are, Use of Pricing Schemes for Differentiating Information Goods by Vidyanand Choudhary, and Marginal Cost by Andrew Muir. Muir's article defines the term ‘marginal cost’, explains a method of estimating these costs, and gives an example of its use (Muir 96). Information goods that have the most considerable effect on marginal cost are streaming devices such as Netflix and free to low-cost E-books.
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Before the technological advances that massively decreased marginal costs, people would go to theaters and libraries for all their desires of movies and books. The movie theaters were ‘expensive’ because it costs the producer to build the theater, hire an electrician to make sure the movie's function properly, have food and drinks available, customer service, and more, which are all additional costs that will be added to the service and therefore increase the price. The use of theaters slowly shifted to watching television at home as cable companies and television shows started to emerge. This means that all the consumers basically had to do is purchase a television, cable company, and technician. By doing this, it cuts the marginal costs by a significant amount in the long run, which meant it was is more affordable and the option of choice for most consumers. Today, many people use their computers to watch television and movies thanks to popular streaming devices such as Netflix and Hulu. Computers are often bought for work and school, and therefore is a two in one by having the consumers already owning their device and being able to watch films. This cuts near all marginal costs, which makes it affordable and efficient for the majority of consumers making this their option of choice. This equation can also be seen with E-books. In the past, consumers would go to libraries and bookstores for any reading material such as books, textbooks, articles, and more. The marginal cost for this was a labor of making the books, the distributor, the service of librarians, customer service, and more. Now, free to very affordable forms of these products are available online, which cut almost the entirety of marginal costs. As you can see these technological advances are beneficial for the consumers and the marginal cost principle has heavily evolved in some cases but it still does not change as it takes place with other products in our economy.
Supply and demand have been around for as long as we can remember, and it is still an essential principle of how our economy functions, even in modern times. Before technological advances, the supply and demand theory was relatively simple, “when the price goes down, demand should be stimulated, and when it goes up, there would be a slowing of demand. Price and demand have the ability to go in the same direction, if actual consumption is exceeding earlier demand predictions, there can be a firming of prices, or conversely, lower consumption statistics may depress prices” (Bartholomew 190). Things have slightly altered since then. In 1987 the USDA had an interesting supply and demand ratio which was often overlooked by many traders and analysts. “Domestic use predictions changed slightly, yet the price went up substantially. Export predictions rose early in the season by 1.5 million tons, then dropped by half that amount. Despite these factors, average prices advanced by 40% and held to the end of the season even though consumption did not total the amounts predicted earlier when the prices were lower. Low prices may have little influence on stimulating demand, but high prices may do little toward retarding demand. Many other factors are even more crucial than the price in changing demand, at least for periods of 12 to 18 months in the case of soybean meal. This includes animal price, cost of other feeds, interest rates, production in other countries, and foreign exchange relationships. Thus, it must be concluded that it can be misleading to attempt a simplistic analysis of USDA supply and demand projections in relation to average season prices provided” (Bartholomew 190).
This is an early observation that affected the basic knowledge of supply and demand, but with the many technological advances that are occurring every day, supply and demand continue to evolve. One of the modern technological advances that got my attention is GMOs - Genetically Modified Organisms. I decided to talk about this because it is something huge and controversial where I am from, Hawaii. Monsanto is a company that has an extensive influence on GMOs in Hawaii. It affects local farmers who have been in Hawaii since then 1800's because it is more affordable for consumers, and uses pesticides that often kill locally grown produce on the local farmland. Before GMOs, we had seasonal fruits and vegetables that were almost entirely originating from Hawaii. This includes seasonal mangoes, pineapples, guavas, lychees, and more. The supply and demand for these products were steady, with very few fluctuations. Now, with GMOs, there are tons of fruits and vegetables for sale in Hawaii that originate from other parts of the world, and there are only a few seasonal locally grown fruits and vegetables that are higher in price. This altered our supply and demand status in Hawaii and had a drastic effect on our economy but still not changing the economic principle.
I chose these two economic terms as stated by Shapiro and Varian because I feel they have been the most affected and influenced by technology advances yet they still taking place in the world. My idea of change is changing entirely and therefore having a new economic principle arising which is not the case. We all grow as individuals and natural alterations are always taking place in the world so it is only right that the economic principles do as well.
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