How the Digital Economy affects markets and firms

Courses Info

Level: AS Levels, A Level, GCSE – Exam Boards: Edexcel, AQA, OCR, WJEC, IB, Eduqas – Economics Revision Notes

These have helped to increase the knowledge consumers have regarding a good / service – reducing some of the asymmetric information between consumers and suppliers
Consumers can make comparisons between different websites to explore the best deals which will give the most value for money

Firms cause viewers of a promotion to share it with friends, creating campaigns which can go viral
Firms can use social media platforms to promote their products and increase brand awareness
Using social media platforms, firms can collect feedback from consumers in aid of developing existing products to make them better suited for consumer demands or creating new products to fit current trends

The Long Tail Theory – implies consumers get a wide variety of products with online retailing. Firms sell a large quantity of niche products to satisfy the consumer’s needs, but only a small amount of each product
Online retailing also suggests that storing / distribution costs will be low, allowing for a greater range of products to be sold and grants firms with access to the worldwide market
Consumers can chose products from worldwide markets

There has been an increase in the demand for workers with digital skills since online retailing has become widespread
If there is a shortage of staff with digital skills, it can become expensive for firms to have to train their workers

Digital Economy has affected the way consumers shop, the price and choice that they get
The loss of famous brands such as blockbuster, Peacocks, and Comet could have stemmed as a result of the Digital Economy
Technological advancements leads to increased productivity and efficiency, as well as lower costs of production – leading to better quality products being produced
Digital Economy has created new competition for existing markets
The process of Creative Destruction has further advanced as a result of the Digital Economy

Quick Fire Quiz – Knowledge Check

1. Identify and explain two forms of market information in the digital economy (8 marks)

2. Explain the impact of wider geographical markets, with reference to the ‘Long Tail Theory’ (4 marks)

3. Identify and explain two supply side effects of the Digital Economy (8 marks)

4. Explain the impact on markets and firms (6 marks)

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