Economics and technology – an introduction

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economics supply and demand

Supply and demand. Picture via https://citycms.s3.amazonaws.com

Besides being an avid technologist, I am an economist. So let me start by introducing you to one of the fundamental concepts in Economics – that of supply and demand.

Demand is defined as the need for a good/service given the budget constraints and it naturally identifies a set of all the different quantities demanded at different prices. An underlying assumption here is that the cheaper the good or service, the larger the quantity demanded of that good.

Supply, on the other hand, refers to the set of all the quantities that producers are willing to supply at different prices. In this case, the assumption is that producers are willing to supply more if the price is higher. A market is where demand and supply meet. In a perfect market, the quantity of goods and services demanded is exactly the same and this state is called an equilibrium.

At this point you just might be wondering what all this has to do with technology. These basic concepts in Economics apply to almost anything you may want to do in business and the more you know about them the better your chances of identifying new opportunities for your technology or business.

In a general sense, technology opportunities will fall non-exclusively into the following three categories:

  1. Supply – this is the most obvious and involves creating a technology product or service to meet a specific need, such as the cell phone or computer. This is the most basic form for this category but it may also include using technology to support the supply-side processes.
  2. Demand influencing – this is where technology is used to influence the behavior of consumers. Traditionally, this role has been reserved for marketers. However, the increasing ubiquitousness of technology places this role squarely in the court of technology innovators who can reach a larger audience at lower costs and in a more personalized and tailored way. As an example, one of the elements underpinning the smart grid movement is the promise of using the technology to optimize consumer behavior in energy consumption.
  3. Market or platform coordination – this is essentially what Google did. They simply sought to coordinate the market for information by efficiently linking suppliers and demanders of information. In fact, they clearly state that their mission is to organize the world’s information and make it universally available. It is generally costly and time-consuming for demanders and suppliers to seek out each other and set the terms of exchange. This is particularly so because of the asymmetric nature of information in the markets and a lot of efficiency would be introduced by having a technology player coordinate the information within these markets and link suppliers and demanders at the lowest cost. Effectively, that’s what e-commerce platforms are for.

It is my belief that there is immense benefit in understanding the economy and economics around your business and how you can better position your technology in that economy. In future installments I will be going into detail on other economics concepts with actual case studies of their application in a technology setting.



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5 Comments

  1. Joe Rugare

    In the context of Zimbabwe, we definitely need technologies that can bring buyers and suppliers together. I applaud new eCommerce websites like http://www.zimseller.com that are trying to bring buyers and sellers together. They have the right technology and the potential to transform how business is conducted in Zimbabwe. For example informal vendors could be moved from the streets of Harare and encouraged to sell their wares on-line where sellers can reach a large number of potential buyers than they could ever dream of, if they remain on the city pavements. Nice article David!

    Reply
    1. David Gate Post author

      Interesting sentiments there. But you do mention quite a radical and ambitious project to remove vendors from the streets and taking them online. Do you think that would be feasible, especially in our Zimbabwean context??

      Reply
  2. Jimbo

    In the Zimbabwean context, there is a demand for bandwidth but the pricing on the supplier side is expensive e.g. $60 per month and supply is mostly available in harare. That alone prohibits demand and the ubiquitous use of technology and kills the idea of e-commerce.

    Reply
    1. David Gate Post author

      I don’t think it kills the idea of e-commerce per se. Maybe it just stalls it. On that issue of bandwidth, the question we should be asking is: why is it so ridiculously expensive in the first place? If we can answer this maybe we can find ways to lower the costs. Saisai.co comes to mind.

      Reply
      1. Jimbo

        Partly bandwidth is expensive because of wanting to maximise profits, in the context of Zimbabwe there are too many service providers chasing too few customers and they have high operating costs.

        Removing vendors of the streets is next to impossible but e-commerce should increase vendor business reach without necessarily removing the vendors of the streets.

        Reply

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