What is Information Economics?

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  • Written By: Ken Black
  • Edited By: Bronwyn Harris
  • Last Modified Date: 29 October 2019
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Information economics is a theory in microeconomics that has developed simply because of the unique nature of information. While nearly everything in the world has become a commodity, including information, it is not all treated the same. Information economics takes those unique properties of information and applies them to a more acceptable economic theory.

In the normal economy, the buying and selling of goods means those goods are no longer able to be used by others, at least not in the same condition. If a person buys a shirt, others are naturally deprived of using that shirt. This theory of deprivation is central to most economic theories.

That simply does not exist in information economics. One person consuming information does not prevent another person from consuming that information. All can share equally in the consumption, according to the information economics theory. While it may be true that buying a book deprives other people of purchasing it, this does not prevent the information from being consumed. Rather, it only deprives others the use of that particular copy of the information.


In normal economic theory, items for trade are usually valued based on their scarcity, as well as their demand. If products become scarcer or demand is increased while supply stays the same, the value increases. However, with information economics, that is not the case. Information is not scarce and is becoming even less scarce all the time. Again, a normal economic theory would not make since in this case.

Information economics therefore indicates the monetary value of information must be presented in such a way as to create an opportunity for trade if that is the end desire of the supplier. Otherwise, those seeking the information will go to sources where the information is free. One way this is achieved is by bundling the information in such a way as to make it more useful, thus giving the consumer an advantage over others without the bundled information.

This is why people may choose to go to a college, for example, rather than just studying a subject or coursework on their own. While the same information they would learn in the classroom may be available in other applications, it will not be presented or bundled in the same way. Therefore, there is a greater chance of retention and practical application if going to a classroom, some believe. Information economics predicts some will choose college based on this bundling. However, the theory stops short of saying all will choose this alternative.


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Post 2

thank you. This information greatly helped me in my assignment.

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