What are the new laws of economics in the knowledge age? In the manufacturing age, the quantity of goods or services demanded and subsequently supplied determine the price of goods or services. The laws of supply and demand dictate at what price and quantity the economy operates most efficiently – the point of equilibrium.
Manufacturing Age Economics – Physical Assets
In the information age, the laws of supply and demand still apply. In a true knowledge economy, knowledge and information are demanded and supplied. The economic system finds equilibrium. However, there exists a fundamental difference between economies based on physical assets and those based on knowledge assets.
Knowledge Age Economics – Knowledge Assets
The shape of the knowledge demand curve follows the same path as the manufacturing demand curve. The more one piece of information is demanded, the more value the market will place on that knowledge asset (directly proportional).
The shape of the knowledge supply curve, on the other hand, does not follow the same principles as the manufacturing supply curve. For a manufacturing supply curve, the price of a physical asset decreases as its supply increases (inversely proportional). For a knowledge supply curve, the price, or value, of a knowledge asset increases as its supply increases (directly proportional).
The knowledge supply function in this economic model is based on three principles.
- The more information on a subject that exists, the more it is valued.
- Knowledge follows a law of conservation. As knowledge is consumed, it does not disappear as a physical asset does. Rather, knowledge has infinite duration. (Side note: In physics, this law is known as the conservation of information. There also exists the information paradox which some physicists have argued exists at the singularity of a black hole. As matter collapses in a field of infinite gravity, does the information stored in atoms disappear?)
- As knowledge is utilized, more knowledge is generated. Two pieces of knowledge come together to form new knowledge. The production of knowledge is an infinite, self-perpetuating process.
Equilibrium in the knowledge economy is achieved when the supply curve perfectly overlays the demand curve. As a result, an infinite number of equilibrium points occur.
What are the shapes of the supply and demand curves for the output of your industry? What are the shapes of the supply and demand curves for the output of your business? Do you or your organization develop and distribute knowledge that follows the knowledge supply curve? Have you fully leveraged the new paradigm of supply in the knowledge age?