The number of us households with access to the internet is...

The number of U.S. households with access to the Internet is growing rapidly. Compared to 50 years ago, one would predict that when considering a major purchase, people today will gather: (A) less information because the Internet has lowered the cost of gathering information. (B) less information because the Internet has increased the benefit of gathering information. (C) more information because the Internet has lowered the cost of gathering information. (D) more information because the Internet has increased the cost of gathering information.

Transcript

00:01 So we have this story about u .s.

00:04 Households getting a lot more internet.

00:06 And they have to use this information to make decisions.

00:09 Well, when people are making decisions, what do they usually do? in economics, we usually say that you do anything until the marginal benefit of the activity equals the marginal cost, right? so i would model this, the internet, as decreasing the marginal cost, right? search and collecting information is getting much easier, right? so the raw cost of searching for information has fallen.

00:42 The marginal cost of, you know, you can do it at home, you don't have to go to the library, you can get a lot better information, right? so the marginal cost of collecting a given amount of information is declined.

00:52 You can get it much more easily and much more quickly, right? so if the marginal cost is going to decline, the marginal benefit of information needs decline as well, right? so for the marginal benefit to decline, what do we need? well, we need much more information, right? and that's what we call diminishing returns, right? you've hopefully heard of diminishing returns in your economic studies to this point.

01:26 But if you haven't, the idea is that for most things, each unit is less and less valuable, right? as i collect more information, each unit gives me less and less new, right? the first piece of information i read is useful, but as i read more and more pieces of information, they increasingly overlap, they don't tell me anything new, they don't add much more insight, is less useful.

01:49 So in order to decrease the marginal benefit, we need to get more information, right? before to drive down the marginal benefit of information even more.

02:01 So if we think about what's going on here, right? a is wrong.

02:07 If i gather less information, there'll be weaker diminishing returns...

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