Unit 1
Unit 2
Economic Markets
Online Markets
In the past, buying a book required a relatively complex set of decisions. First, you would need to get in your car, and drive to an appropriate shopping area. Then you would look for parking. Having found a place to park your car, you would head towards the local bookshop, and start browsing through the available titles. The book you chose might be based on a recommendation, the cover artwork, or just a whim. Of course, it is also possible that this bookshop didn’t have the book you were looking for...and so the process would start again.
Today, the process of buying a book is very different. Anyone in the world can log on to websites like amazon.com and start shopping. The range of books is far greater than any one bookshop can stock, and you can shop at any time of the day or night. While there is a delivery cost to pay, this does compare with the time, driving and parking that you had to pay in the past. Best of all, each time you look at a book, you will also be able to see reviews that have been posted. This means that you can make an informed decision, or perhaps even be directed to a book that is more likely to meet your needs.
Online markets like amazon.com have transformed the way that we shop. A list of the top ten most frequently visited websites includes Amazon, eBay and more. As more and more people come to trust the technology, online shopping is fast becoming the norm.
There are very strong economic reasons why online shopping has become so popular so quickly. You have already seen that markets are built on certain assumptions, but that these assumptions are unlikely to be true in the real world. Online markets take us closer to the theoretical possibility that can be offered by markets. For example, you have previously seen that economists assume that there are many buyers and sellers. In a local shopping area this might not be true. But when looking at an online market buyers and sellers are brought together from all over the world. This means that it is much more difficult for one party to the transaction to hold any form of market power. For example, if you were to search for your favourite book on eBay, you might find that there are many hundreds of people willing to sell you a copy. You will naturally gravitate towards the copy that is in the best condition, or available for the lowest price. If a seller wants to make a sale, they will try to offer the book for the lowest possible price.
Economists also assume that all buyers and sellers have complete knowledge of the market, but at the local store it isn’t possible for this to be true. However, online you will find that you can gain access to far more information, and as a result if you take the time to do the research you will make a more informed decision.
Online markets are not limited to books. Today you can buy real estate, wine, whitegoods, clothes, mobile phones and just about anything else that you can think of, all with a few clicks of your mouse. In 2009, a two year old boy in New Zealand accidently purchased a NZ$40,000 tractor. This was made possible because the process of buying online is so simple; his mother was already logged in to her eBay account, and he clicked on “buy it now”. (It should be noted that the contract didn’t stand, and the family wasn’t required to pay for the tractor!)
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