Chapter 4 Blog Assignment

a)  I found the passage "...most tourists lack the general knowledge of normal price levels and the ability to judge quality of workmanship" to be particularly interesting because I completely agree with it. I've been a tourist numerous times and whenever I wanted to purchase a souvenir from a street vendor, I really had no idea why everything was priced the way it was or how to set a bargain, especially when it came to jewelry. They almost always look very expensive and the gems look real, but the vendors really have no proof that anything is what they say it is. They just roam the beaches with wooden cases filled with silver jewelry and gems. On one particular vacation, my mom and stepsisters bought rings that the vendor said had real Tanzanite in it for a pretty high price. When we got home, my mom took her ring to a jewelry store and they said the supposed gem was actually just colored glass. The vendor was incredibly nice and even lowered the cost to something both he and my mom agreed on, but he still got a lot of money for something worth maybe $5. Had we gone to a jewelry store in the United States, the risk of buying a fake gem is significantly lower because the store likely has proof that the gem is real and advertisements would help us choose where to go. In a Mexican resort, there are dozens of vendors selling essentially the same items and all we have to go on is their word.

b)  A transaction cost is the cost of inconvenience that a buyer experiences when trying to make a good purchase with little to no information. For example, if someone wants to buy a couch and they don't know if the price at one store is too high for the quality of the couch they're selling, that buyer accumulates transaction costs by traveling to other stores and spending time trying to figure out if their couches are any better. With more information available, transaction costs are lowered.

c)  Imperfect information leads to inefficient market function. Without devises like advertising, it is hard for buyers and sellers to find each other and transactions that could have been beneficial to both parties aren't made so they both lose. It is also hard for buyers to feel comfortable making purchases when little information is available because they're afraid of being taken advantage of in both price and quality. Really the only party that gains from uneven information flow is the market intermediary.