1. To Accompany “Economics: Private and Public Choice 13th ed.” James Gwartney, Richard Stroup, Russell Sobel, & David Macpherson Slides authored and animated by: Joseph Connors, James Gwartney, & Charles Skipton Full Length Text — Micro Only Text — Part: Next page Macro Only Text —Part: Copyright ©2010 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible web site, in whole or in part. Special Topic: The Internet: How Is It Changing the Economy? 2 2 5 2 4 6

2. Jump to first page Copyright ©2010 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible web site, in whole or in part. Use of the Internet

3. Jump to first page Copyright ©2010 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible web site, in whole or in part. Use of the Internet has grown dramatically since the early 1990s and is now a worldwide phenomenon. Use of the Internet

4. Jump to first page Copyright ©2010 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible web site, in whole or in part. The Growth of the Internet Millions of Internet Web Sites The number of Web sites rose dramatically between 1992 and 2008. By 2008, there were over 100 million Web sites. Source: www.zooknic.com. 60 50 40 30 20 10 80 70 1992199419961998200220042000 0 2006 100 90 120 110 130 2008

5. Jump to first page Copyright ©2010 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible web site, in whole or in part. Who Uses the Internet? Geographic Distribution of the Internet About one-sixth of internet users live in North America. About a quarter reside in Europe. Two-fifths are in Asia. Asia 41% Africa 3% North America 16% Oceania/ Australia 1% Latin America 11% Middle East 3% Europe 25%

6. Jump to first page Copyright ©2010 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible web site, in whole or in part. Economic Gains from the Internet

7. Jump to first page Copyright ©2010 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible web site, in whole or in part. Sources of economic gains from the Internet: Lower transaction costs. Broader and more competitive markets. Networking. Potential Gains from the Internet

8. Jump to first page Copyright ©2010 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible web site, in whole or in part. Key Sectors of Internet Growth

9. Jump to first page Copyright ©2010 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible web site, in whole or in part. The Internet is now used extensively in several consumer markets such as airline tickets, books, music, and videos. eBay has revolutionized the market for used consumer durables. The Internet is quickly transforming how banking is conducted as the number of households paying their bills online is rapidly increasing. Key Sectors of Internet Growth

10. Jump to first page Copyright ©2010 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible web site, in whole or in part. Key Sectors of Internet Growth Food Automobiles and Auto Parts Sporting Goods Electronics and Appliances Apparel Travel Books Computer hardware and software The share of sales conducted on-line exceeds 10% in the travel, books, and computer hardware & software markets. The market share for on-line firms in the automobile, food, and apparel markets is much smaller. 1% 3% 5% 7% 23% 18% 38% Internet Sales by Product Categories, 2007

11. Jump to first page Copyright ©2010 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible web site, in whole or in part. More Efficient Consumer Markets

12. Jump to first page Copyright ©2010 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible web site, in whole or in part. The Internet helps create value in final product markets by either reducing sellers’ costs or improving the matches between sellers and consumers. Improved efficiency in both production and distribution have reduced costs. Matches are improved through better information about available goods, greater access to goods, and increased customization. More Efficient Consumer Markets

13. Jump to first page Copyright ©2010 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible web site, in whole or in part. More Efficient Input Markets and Production Processes

14. Jump to first page Copyright ©2010 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible web site, in whole or in part. The ability of the Internet to improve matches between buyers and sellers also applies to business-to-business transactions. The Internet can lower transactions costs between companies. More Efficient Input Markets

15. Jump to first page Copyright ©2010 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible web site, in whole or in part. Labor Markets and the Internet

16. Jump to first page Copyright ©2010 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible web site, in whole or in part. The Internet is rapidly becoming an integral part of the job search process. Labor Market and the Internet The reduction in the cost of information through the Internet will tend to lower the rate of unemployment and improve the match between jobs and employee skills. The Internet also makes it possible for many employees to work at home and at other locations.

17. Jump to first page Copyright ©2010 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible web site, in whole or in part. Questions for Thought: 1.What impact does the Internet have on the efficiency of markets? Explain. How is the Internet likely to influence productivity and the growth of output in the years immediately ahead? 2. The share of airline tickets bought over the Internet has grown rapidly, while the percent of groceries purchased online remains minuscule. What factors likely explain this difference?

18. Jump to first page Copyright ©2010 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible web site, in whole or in part. Questions for Thought: 3.Many people now have fast broadband connections to the web. Can you think of product markets that have been substantively impacted by this change? 4. How is the internet influencing the production, marketing, and distribution of: (a) popular music, (b) movies, (c) automobiles, (d) commercial employment agencies, (e) beautician services, and (f) health care. Briefly explain your response.

19. Jump to first page Copyright ©2010 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible web site, in whole or in part. End Special Topic 2