ECON 3011 – Intermediate Microeconomic Theory
Instructor: Matthew Shi
Due date: Thursday, Nov. 24, 2016
Please summit a hardcopy of this assignment either in person
or to my mailbox by November 24, 2016.
Any late work will not be accepted.
Read “Jensen, Robert. ‘The Digital Provide: Information (Technology), Market
Performance, and Welfare in the South Indian Fisheries Sector.’ The Quarterly
Journal of Economics (2007), 122 (3): 879-924.” and answer the following
Please write legibly and concisely. You will be graded holistically based on
both your understanding of the material and clarity of your thoughts:
3 points – Excellent understanding with coherent and concise responses;
2 points – Good understanding with prolonged and/or somewhat problematic
1 point – Some understanding of the paper;
0 point – Unacceptable work.
A. Introduction and Background
(i). Is the paper mainly theoretical or empirical?
(ii). What is/are the question/questions the author attempts to answer in this
paper? Is it related to any economic concepts? Is it relevant to any policies in
developing countries? Explain your answer.
B. Economic Content
Define law of one price and arbitrage. How are they related to this paper?
C. Economic Methodology
(i).Describe the data-set that the author uses.
(ii). According to the author, mobile phones were introduced to and adopted in
the areas gradually. Which figures show that? Why is this fact particularly
important to this study?
(iii). Which figure helps visualize the main results of this paper? Explain this
(iv). After his main argument, what does the author do in Section IV. C?
D. Your responses
(i). Do you like this paper? Why or why not?
(ii). Can you think of one real-world example when there exist different sales
prices of the same product simultaneously? What causes that in your example?
A. Introduction and Background
The paper was empirical because it relied on the collection data about the research question to make conclusions and recommendations. The data collected included information about the impacts of technology in the fishing markets in Kerala. For example, the use of Bayes-Nash equilibrium model is a clear indication of the empirical study conducted through the collection of data and qualitative information.
The research question that the author attempts in the paper is whether improvements in information access impacts on the performance of the market and welfare within the economy. The paper is related to the different economic concepts including a law of one price and the arbitrage concepts. The research question is relevant policies about promoting market information in the developing countries. The developing countries are keen to promote the access to perfect information with the markets.
B. Economic Content
Law of One Price and Arbitrage
The law of one price defines the economic model which explains that the price of a certain financial security, or assets with the same price if exchange rates are considered. The law of one price is usually a way of explaining the component of the purchasing power parity. The law of one price usually exists due to the potential arbitrage opportunities. When the price of security is different in different markets, an arbitrageur can purchase assets in the cheaper market and selling the security at higher prices. The concept of a law of one price usually prevents the investors from enjoying the advantage of price differences between the markets.
Arbitrage defines the continuous purchase and sale of assets to earn profits from changes in the prices. It involves the profit obtained from the manipulation of the prices of the financial instruments among the different markets. However, arbitrage only emerges because of market inefficiencies. Arbitrage offers a relevant approach useful in making ensure that the prices do not deviate from the fair value of the financial instruments in the long run. With the growth in innovation and technology, it has become tough for the organizations to gain profits from the pricing errors within the markets. It is because traders are relying on computer trading platforms to monitor the changes in prices.
The law of one price and the aspects of arbitrage strongly relates to the paper. It is because the paper explains how the access to information impacts on the markets. With access to information due to the increased mobile phones, the researcher found out that it helped to improve the market welfare. For example, access to information lowered price dispersion that led to the increase in the overall fisherman’s earnings. Similarly to the concept of one price, the paper was able to understand how the access to information was able to stabilize the price increasing the earnings. In such a case, the arbitrageurs cannot benefit as the market prices are stable and well defined.
C. Economic Methodology
The data set the author uses includes the information obtained from the weekly survey of 300 sardine fishing areas. The data from the fishing areas was critical in promoting the interviewing of information in the districts. Another important data set was the spread of mobile phones among the buyers and the fisherman. 198 participants were selected to improve the collection of data in determining the penetration levels across the regions. Other data sets include the weeks of mobile phones penetration is important in understanding the research question on the research question.
Based on the paper, it is clear that the mobile phones were adopted in the areas gradually with a figure of 60–75 percent penetration level. The sales of the mobile phones were mainly conducted in the Beach auctions. The penetration level percentage was an encouraging figure in promoting the access to market information to all fishermen. The fact about the gradual introduction and adoption of the mobile phones in the areas is important to this study as it indicates the influence of the adoption of mobile phone communication in shaping the markets. The study depends on understanding the impacts of mobile phones adoption to promote the significance of market access and adoption.
Figure III is helpful in visualizing the main results of the research study. The figure can show the adoption of mobile phones by the fishermen from the Kerala area through the conduction of survey. It is also able to show the number of weeks and the level of mobile phone penetration among the fishermen. Based on the observations from the figure, it is clear to address how the access to market information through increased mobile phones adoption will reduce differences in prices in the market. Therefore, the figure is critical in understanding the nature of results in addressing concerns of market penetration in the region.
In section IV.C, the authors were able to provide alternative explanations for the results. The author provided additional information and scenarios to understand the provision of price information in influence the market outcomes. The nature and implications of mobile phones adoption impact on the performance of the different economic sectors. Under this section, the author was able to relate the results obtained from the survey with relevant economic concepts in addressing the research question. For example, the model of promoting supply variability and changes in wealth to lower price dispersion in increasing aggregate demand that leads to the reduction of waste. Therefore, the section was appropriate in providing varied interpretations and discussion about the main research findings and outcomes.
D. Your Responses
I like this paper because it was structured well in addressing the research questions and objectives in the markets. For instance, the paper comes up with a clear research question about how improvements in the information influence market performance and welfare. Most importantly, the paper presents its empirical study and methodology that guides on the collection data through relevant economic models to understand the efficiency of the markets. In the first section, the paper was comprehensive in bringing about the background to the proper functioning of markets due to the access to information. It defines the model of a law of one price in enhancing market performance and expansion. It also presents the data collected from Kerala Fisherman to promote the alignment. Based on the analysis, I feel that the paper was a relevant empirical study to assess the implications of access to market information influencing purchases in the markets. The selection of Kerala Fisherman was offered a reliable case study to address the research questions.
One of the real world examples is the airline industry where there exists a different ticket price of the sale product simultaneously. It is clear that the different airline companies usually charges different ticket prices for the seats. The causes of the differences in ticket prices for the seats in the airline industry includes the lack of perfect information among the passengers, the quality of services offered by the different carriers in the industry, and the regulations in the markets. Such factors can lead to arbitrage where there is a difference in ticket prices. Also, the time of booking might lead to a different price for the air ticket. For example, a person booking the air ticket early would pay less than a person booking the air ticket late in the airline industry.
Jensen, R. (2007). The digital provide: Information (technology), market performance, and welfare in the South Indian fisheries sector. The Quarterly Journal of Economics, 122 (3): 879-924.
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