L11 Econ 1011 Lecture 12: The Economics of Information
18 Aug 2016
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Document Summary
Adam smith"s invisible hand theory presumes that buyers are fully informed about the myriad ways in which they might spend their money, but rarely true in real life. One common problem is the need to choose among different versions of a product whose features they don"t fully understand: might be cheaper on the internet, but no informed salesperson to help you make the right decision. Many people view sales agents as middlemen, and would rather go directly to the production worker. Sales agents add genuine economic value by increasing the extent to which goods and services nd their way to the consumers who value them the most. People tend to gather information from the cheapest source before turning to more costly one. A rational consumer will continue to gather information as long as its marginal bene t exceeds its marginal cost.
