This document provides a comparative analysis of the conventional and Islamic economic theories of information and advertising.
The conventional theories view the market through a positive lens and promote maximizing profits and consumer utility, while ignoring ethical and social considerations. This can lead to unfair advertising practices. Islamic economics considers both positive and normative views, emphasizing ethics and social welfare.
The paper finds that Islamic theories are more effective because they prohibit dishonesty and manipulation of information. Integration of Islamic principles into conventional theories could help eliminate information asymmetries and unfair practices. While conventional theories cannot address issues like dishonesty, Islamic economics derives from the Quran and Hadith teachings on honesty and accountability in business.
This video focuses on the introduction to Economics, economic problems and opportunity cost and discuss definitions of economics given by Adam Smith, Marshall, Prof. Robbins and Paul Samuelson. This video also cover the subject matter of economics which includes nature of economics, relationship of economics with other sciences and limitations of economics and methods of economic analysis which includes inductive method and deductive method.
This video focuses on the introduction to Economics, economic problems and opportunity cost and discuss definitions of economics given by Adam Smith, Marshall, Prof. Robbins and Paul Samuelson. This video also cover the subject matter of economics which includes nature of economics, relationship of economics with other sciences and limitations of economics and methods of economic analysis which includes inductive method and deductive method.
Scarcity, Choice, and Opportunity CostScarcity and Choice in a One-Person EconomyScarcity and Choice in an Economy of Two or MoreThe Production Possibility FrontierComparative Advantage and the Gains from TradeThe Economic ProblemEconomic SystemsCommand EconomiesLaissez-Faire Economies: The Free MarketMixed Systems, Markets, and Governments
In the essential criteria of economic dynamism, immaterial capital, or capital knowledge, has
become the true wealth of a country. known as the knowledge economy, it attempts to overcome the major
concern of economists for material
Scarcity, Choice, and Opportunity CostScarcity and Choice in a One-Person EconomyScarcity and Choice in an Economy of Two or MoreThe Production Possibility FrontierComparative Advantage and the Gains from TradeThe Economic ProblemEconomic SystemsCommand EconomiesLaissez-Faire Economies: The Free MarketMixed Systems, Markets, and Governments
In the essential criteria of economic dynamism, immaterial capital, or capital knowledge, has
become the true wealth of a country. known as the knowledge economy, it attempts to overcome the major
concern of economists for material
Potential unexplored tourism and economic growth of bangladesh[#694179] 982065Basharat Hossain
This paper examines the potential effects of tourism on the economic growth of Bangladesh. It is a review paper of the
literature based on secondary data. This paper discusses various aspects regarding the effects of the tourism industry on
the overall economic progress of the country, including real GDP growth, infrastructural development and employment
generation. Since the tourism industry has a small share of revenue to the GDP of Bangladesh’s economy (at this moment),
its contribution to economic growth is limited till now. This paper finds that the current size of the Bangladesh tourism
economy is BDT 500 million. Besides, Bangladesh earned USD 1157 million from tourism sector during 2009-2018 period.
Each year, 0.55 million tourists (on average) visit Bangladesh in the same period. Moreover, it creates 2.23 million jobs
each year. The travel and tourism sector contributes 4.4% of the GDP in each year. Bangladesh’s government ensures a
lot of facilities for tourists.This article points out a number of issues that need to be considered in the tourism industry
to play a more significant role regarding economic growth, and the overall socio-economic development of Bangladesh.
Keywords
Impact, Tourism, Economic growth, Economic development, Banglades
Bangladesh is currently the 41st of the largest economy of the world and the second
largest economy of South Asia, only next to India. Bangladesh is a south Asian and
lower-middle-income country with around 163.7 million populations. The current
size of Bangladesh’s GDP is USD 286 billion, with 8.13 per cent growth rate in 2018-
19 and it is estimated to be the 24th world largest economy by 2033 (Bangladesh
Economic Review (BER) 2019, Centre for Economics and Business Research
(CEBR), (2018). Apart from the service sector, the industry sector is the highest
contributing sector in this economy (35.14 per cent) followed by agriculture (13.61
per cent), transport and communication sectors (10.98 per cent) respectively
(BER, 2019). The industry sector covers four sub-sectors; these are: “mining and
quarrying, manufacturing, electricity, gas and water supply and construction.”
The proliferation of the Urban Microfinance and its problems and prospects in...Basharat Hossain
The goal of this article is to inspect the current status, problems and, prospects of
urban microfinance in Bangladesh. This article employs the descriptive research methods based
on secondary data. This paper Illustrates the present scenario of urban microfinance by using
tables, graphs and the trend analysis. This paper finds that the urban microfinance in
Bangladesh has been growing tremendously during the last decades. During the 2006-2017
period, the number of members within the urban microfinance program has increased by
110.69%. Besides the amount of loan amount disbursed in the urban microfinance program has
increased by 110.54 % during the last four years (2014-2017). Also, the rate of increases of the
total net savings of the urban microfinance members (373.33%) was higher than the rate of
increases of the total net savings of the rural microfinance members (152.36%) during the 2009-
2017 period. The loan Interest rate varies in between 15% and 30%. With regards to recovering
the loan amount, 95% of the microfinance institutions (MFIs) apply the flat interest rate while the
remaining 5% of the MFIs use the declining method.
Poverty Reduction during 1971-2013 Periods: Success and its Recent Trends in ...Basharat Hossain
This paper analyses data on poverty for 1971-2013 periods and finds that, Bangladesh
reduces national poverty by 55.82 percent during these periods. Moreover, nearly 44 percent
people are found extremely poor who earn less than $1.25 per day and 77 percent people are
moderately poor who earn less than $2 per day. Though, absolute income poverty declines but
income inequality rises by 30 percent in these periods. However, different international indexes
disclose that, Bangladesh also reduces human poverty. Bangladesh is no longer the member of
‘alarmingly hunger countries’ and will become the member of ‘Medium human development
countries’ by 2014. Besides, about 58 percent people are found multi-dimensionally poor, who
suffer from overlapping deprivations in health, education and standard of living. Finally, this
paper makes a comparison between Bangladesh and other south Asian countries and finds that,
Bangladesh has the highest level of poverty followed by India in this region.
Maslahah based Production Ensures Peace in the World Economy Compared to the ...Basharat Hossain
Maslahah means public benefit and welfare. This paper uses secondary data and analyzed the impact of two non-Maslahah products (alcohol and tobacco) and two non-Maslahah services (gambling and prostitution) on the global peace. The findings implied that, non-Maslahah products and services create impediments to attain and maintain the peace in the world economy. Alcohol produces 200 diseases and was the cause of 3.2% of global death in 2016. Tobacco is the causes of the death of over 7 million people globally in 2017 by generating cardiovascular and respiratory diseases. Gambling causes mental depression, violence in family and society, losses of economic resources. Prostitution disgraces the dignity of women and also produces several diseases, including HIV/AIDS that causes the death of 36.7 million people worldwide. Besides, it creates the hate against women by producing pornography. Conversely, Maslahah product and service such as Juice, rice, interest free banking only provide useful outcome to attain global peace. Finally, this paper recommends the ways to eliminate the production of non-Maslahah product from the economy.
Key Words: Maslahah, Non-Maslahah, Islamic Economics, Peace, World economy
A Discussion on the Concept of Maslahah and Non-Maslahah
Maslahah (مَصْلَحَة) is an Arabic word that originated from the noun ‘Salaha (صلح)’. The plural form is Masaalih (مَصَالِح). The literal meaning is good, right, appropriate, pious, good-will or friendly feelings, peacemaking, useful, beneficial and constructive (Almaany, 2017).
Terminologically, Maslahah can be defined as the consideration of those factors which obtains or ensures the benefit and welfare or inhibits the harms and also complies the aim and theme as well as the intention of the Islamic shariah (Al-Syatibi 2003, Al Ghazali). In addition, Maslahah ensures the five essential things of the life, namely faith, life, intellect, lineage and property (Mannan, 1984).
Islamic economists develop and employ the concept of Maslahah instead of the concept of utility. According to them, Maslahah is the superior concept of the utility. Utility is the property or power of the goods and services that satisfy the human needs and wants. On the contrary, Islamic economists define the Maslahah as the utility along with the useful and welfare characteristics. Hence, a product may have utility, but may not have Maslahah. Conversely, all Maslahah products have utility. For instance, fruit juice has utility and Maslahah while wine has only utility, but not have Maslahah (Mannan, 1984).
However, non-Maslahah can be used as the synonym of Mafsadah (evil). The literal meaning is harm, bad, deteriorate, perish and destroy. So a product or service may be defined as non-Maslahah product which has harmful effects for the five indispensable elements of the human life (Mannan, 1984). For example; tobacco, tobacco products, alcohol, charging usury or interest etc.
Islamic Microfinance and Rehabilitation Model for the Slum and Floating Popul...Basharat Hossain
This paper designs a conceptual model of Islamic microfinance and reha-bilitation by using the waqf funds for the slum and floating population. It analyzes both the primary and the secondary data on the current status of Islamic microfinance cover-age (in thirteen countries), waqf estates (in seven countries), and the slum and floating population in thirty five Muslim countries of the world. The primary data was accumu-lated on 150 microfinance borrowers and 100 non-borrowers of Bangladesh. This pa-per presents a multifunctional structure of an autonomous waqf management institution to execute the model of this paper. This institution will be formed by the joint venture of the government, the national, as well as international Islamic agencies. Furthermore, this model will be implemented through five stages, the revival and registration of the waqf estate, accumulation of funds, initiating the Islamic microfinance and rehabilita-tion for the slum population, and finally, forward linkage that may help the slum people to contribute to the society
Keywords: Waqf, Islamic Microfinance, Rehabilitation, Slum population, Muslim countries.
JEL Classification: G21, O21, Z12 KAUJIE Classification: E23, H15, S4
Application of Islamic Consumer Theory: An Empirical Analysis in the Context ...Basharat Hossain
This paper presents a report on an empirical survey on application of Islamic consumer theory in Bangladesh which was conducted on 184 graduate students of economics from Dhaka University, Bangladesh. This study reveals that, majority of the respondents consider the concept of Halal and Haram in economic transactions. Besides, they argue against the interest based economic system and prescribe that religious instruments (Zakat, awqaf, Fitra etc.) should be included in the syllabus of modern economics and it should be taught in educational institutions. Finally, it recommends some policies to implement Islamic consumer theory in Bangladesh.
Key words:Islamic Consumer Theory, Islamic economics, Consumption, Survey Bangladesh
JEL Classification: D10, D11, D12, Z12
Identifying Presence of Gharar in the Buying and Selling Mechanism under Diff...Basharat Hossain
The goal of this article is to investigate presence of Gharar in the buying and selling mechanism of different kinds of market. This is a qualitative paper based on theory and secondary information. The paper finds that the Gharar exists highly in the imperfectly competitive market compared to that of perfectly competitive. The level of Gharar is higher in monopoly followed by oligopoly and monopolistic market. Finally, the paper recommends some steps to be taken to avoid Gharar in buying and selling mechanism of those markets.
Key words: Gharar, Market, Buying and Selling Mechanism
JEL Code: Q01, Q56, Q57
Nexus between Foreign Aid and Economic Growth: Evidences from BangladeshBasharat Hossain
Bangladesh receives about $56.5 billion foreign aid during 1971-2012 periods. This
paper analyzes 33 years data for 1980-2012 periods to show the effects of foreign aid on the
economic growth of Bangladesh. This study estimates eight models including three for last three
decades (1980-1990, 1991-2001, 2002-2012), four for the four different government periods,
namely, Military government period (1982-1990), BNP (Bangladesh Nationalist Party) government
(1991-1995, 2002-2006) , BAL (Bangladesh Awami League) government (1996-2001, 2009-2012)
and the Whole Democratic government period (1991-2012) and one for entire period (1980-
2012). This research finds that, foreign aid has positive effect on the economic growth of
Bangladesh and it is statistically significant in two models. The contribution of aid to GDP is
falling overtime. This paper also reveals that the aid generates decreasing returns because of
capacity constraint of Bangladeshi institutions to utilize foreign aid effectively. This finding is
consistent with previous findings of different researches.
Keywords: oreign aid, effect, economic growth, government, bangladesh
Economic Rationalism and Consumption: Islamic PerspectiveBasharat Hossain
This paper presents a comparative view of Islamic economic rationalism and
consumption framework to its counterpart’s conventional capitalist and socialist
economic system. In conventional economic system, only self-interest and rationality
of the consumer is the main principle to maximize utility whereas moral, religious,
national, historical, cultural and social values are absent here. Consequently, the
consumers enjoy sovereignty with little or no intervention of regulatory authority to
maximize the utility. On the contrary, Islamic economic system designs its rationality
and consumption principle in moderation that is far away from extremism where
freedom and regulation is moderately recognized. Therefore, Islamic rationality
encourages the consumers to maximize his utility by insuring religious, national,
historical, cultural and social values. Besides, conventional economics have no
treatment to immoral activities of consumer while Islamic economics derived from
the Holy Quran and Hadith offers rewards and punishments for moral and immoral
activities in worldly and hereafter life.
Does Microfinance Matter for Women Borrowers? Recent Findings from BangladeshBasharat Hossain
This paper examines the impact of microfinance on some selected women borrower respondents of
Bangladesh, who have been selected through a systematic random survey process. This is a
quantitative research based on primary and secondary data. The primary data was collected
through a structured questionnaire on sixty women borrowers of the Dhaka City, Bangladesh. This
paper finds that microfinance has a highly significant positive impact on the income of these women
borrower respondents. Moreover, though microfinance encourages for savings and buying new
asset but it has no significant impact on their asset building and savings.Overall, there has been a
mixed outcome from this cross-sections data: microfinance has been found as a matter for women
borrowers’ income increasing aspects, whereas not much effective in increasing savings or building
up of assets. Finally the paper recommends some steps to increase effectiveness of microfinance
on the women borrowers, including expanding training facilities and lower interest rates particularly
for women borrowers
Do the Slum Dwellers Enjoy the Basic Constitutional and Economic Rights as a ...Basharat Hossain
Bangladesh is a country of about 156million people including nearly 7.81
million of slum people. This paper investigates 28 years data for 1986- 2014
periods on the living standard of slum dwellers of Bangladesh. It presents
the different forms of deprivations, sufferings and miseries of slum people
from basic needs including social, constitutional and economic rights.
More specifically, the wretchedness of slum dwellers in housing, drinking
water, sanitation, food intake, healthcare, education, employment, income
patterns, social status and security, economic and public assistance has
been explored in this paper. In addition, poverty scenario and services of
social organization among slum people has been focused in this paper.
Finally, it recommends some policies to improve the living conditions of
slum dwellers in Bangladesh.
Keywords: Slum Dwellers, Standard of Living, Basic Needs, Constitutional
and Economic rights, Bangladesh
JEL Classification Code: I31, I38, I13, I18, I25, E26, O18, O15, O17
Deadweight Loss in the Interest-based and the Interest-Free (Islamic) Microfi...Basharat Hossain
This paper illustrates the deadweight loss in the interest-based Microfinance program compared to the
interest-free or Islamic Microfinance program in terms of ‘consumer’ surplus, producer’ surplus, loan
price and the quantity demanded of the Microfinance loan. This article analyzes the secondary data on
twenty Microfinance institutions of the nine countries of the world, and world microfinance data.
Deadweight loss is demonstrated by using a numerical example and graphical presentation. The
findings expose that consumer’ surplus is at least three times higher, and producer’ surplus is also
higher in the Islamic Microfinance than the interest-based Microfinance program. In contrast the loan
price is at least 142%-241% higher in interest-based Microfinance than the Islamic Microfinance.
Consequently, the quantity demanded of Microfinance loan is higher in the Islamic Microfinance than
the interest-based Microfinance. Finally this paper recommends for converting the interest-based
Microfinance institution into the Islamic Microfinance institution to attain the wellbeing of microfinance
member.
Keywords: Deadweight Loss, Interest-based Microfinance, Interest-free Microfinance, Islamic
Microfinance, Consumer and Producer Surplus, Loan price.
Jel Codes: G21, I31, Z12
Application of Islamic Consumer Theory: An Empirical Analysis in the Context ...Basharat Hossain
Abstract: One of the main goals of economics is to satisfy the wants of consumer. Like as conventional economics, Islamic economics has also its own law of consumption which is superior to that of conventional economics. This paper presents an empirical survey report on the application of Islamic consumer theory in Bangladesh.The survey is conducted on 184 graduate students of economics from university of Dhaka, Bangladesh. Besides, the consumption framework of Islamic economics has been discussed in this paper. The research finds that, the majority percent of respondents consider Halal (lawful), Haram (unlawful), economic disadvantages of other consumers, scope of reward and punishment in hereafter life (life after death) in their consumptions and other economic activities. The report explores that, though the wants is unlimited, the respondents are capable to control their wants and choose moderate and simple standard of living. In addition, they mentioned that, the use of interest is not essential to run economic activities and interest free economy is possible. It is found that, a large proportion of the respondents did not study Islamic economics due to unavailability of the reading materials in spite of having their interest while half of the respondents read it. Finally, the opinion is found that, religious and ethical instruments (Zakat, donation, hereafter life etc.) should be included in the syllabus of modern economics in school, college and university level. The findings satisfy the assumptions of Islamic consumption framework. Finally, it presents the problems, prospects and recommendations to apply the Islamic consumer theory in Bangladesh.
Keywords: Islamic Consumer Theory, Islamic economics, Consumption, Bangladesh
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2. Elemental Economics - Mineral demand.pdfNeal Brewster
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Lecture slide titled Fraud Risk Mitigation, Webinar Lecture Delivered at the Society for West African Internal Audit Practitioners (SWAIAP) on Wednesday, November 8, 2023.
Financial Assets: Debit vs Equity Securities.pptxWrito-Finance
financial assets represent claim for future benefit or cash. Financial assets are formed by establishing contracts between participants. These financial assets are used for collection of huge amounts of money for business purposes.
Two major Types: Debt Securities and Equity Securities.
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There are no fixed maturity dates in such securities, and asset’s value is determined by company’s performance. There are two major types of equity securities: common stock and preferred stock.
Common Stock: These are simple equity securities and bear no complexities which the preferred stock bears. Holders of such securities or instrument have the voting rights when it comes to select the company’s board of director or the business decisions to be made.
Preferred Stock: Preferred stocks are sometime referred to as hybrid securities, because it contains elements of both debit security and equity security. Preferred stock confers ownership rights to security holder that is why it is equity instrument
<a href="https://www.writofinance.com/equity-securities-features-types-risk/" >Equity securities </a> as a whole is used for capital funding for companies. Companies have multiple expenses to cover. Potential growth of company is required in competitive market. So, these securities are used for capital generation, and then uses it for company’s growth.
Concluding remarks
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The Rise of Generative AI in Finance: Reshaping the Industry with Synthetic DataChampak Jhagmag
In this presentation, we will explore the rise of generative AI in finance and its potential to reshape the industry. We will discuss how generative AI can be used to develop new products, combat fraud, and revolutionize risk management. Finally, we will address some of the ethical considerations and challenges associated with this powerful technology.
The Rise of Generative AI in Finance: Reshaping the Industry with Synthetic Data
Economics of Information and Advertising: A Comparative Analysis in View of Conventional and Islamic Economics
1. Thoughts on Economics
Vol. 24, No. 02
Economics of Information and Advertising: A
Comparative Analysis in View of Conventional
and Islamic Economics
Basharat Hossain1
ABSTRACT: Information has enormous influences to maximize the satisfaction of
economic agents whereas advertising works as a media to convey information to the market.
Informative advertising makes consumers better off while persuasive or uninformative
advertising worsens them off. This paper makes a comparison between Islamic and
conventional theories of information and advertisements through the “Constructionist”
approach. This paper reveals that, Islamic theories are more effective than the conventional
theories, because Islamic economics scrutinizes the market in terms of both positive and
normative sight. On the contrary, conventional theories evaluate the market in terms of
positive view only and promote contemporary advertisement which uses some unfair means
including women, nudity, sexual appeals, and misinformation which further creates serious
social, cultural and ethical problems in market. This problem prolongs due to absent of
ethics and Islamic principles in conventional business. This article illustrates that, since law
is not worth enough to correct the market, so an integration of Islamic principles and ethics
to conventional theories is needed to eliminate the information asymmetries in advertising.
Furthermore, conventional theories have no cure to dishonesty like information
manipulation whilst Islamic economics derived from the Quran and Hadith offers rewards
and punishments for honesty and dishonesty in business transactions.
Key Words: Information, Advertisement, Conventional and Islamic economics, Quran,
Hadith
JEL Classifications: D8, M3, M21, P51
1. INTRODUCTION
Information has prodigious contributions in economics, to determine the utility
and profit of the consumer and producer respectively. It can be defined as the
data available to individuals, firms or governments at the time when economic
decisions have to be taken. It concerns states of nature, technology, the
1 Lecturer in Economics, Department of Business Administration, International Islamic
University Chittagong, Chittagong, Bangladesh.
2. 18 Economics of Information and Advertising ……………..
decisions of other economic agents and one’s own preferences and plans
(Stieglitz 2000). However, advertisements are widely used technique to
convey information of the products to the economic agents. It is defined as an
activity designed to sell products and seeks to attract the attention of potential
customers, inform them of the existence and attributes of a product, and
persuade them to start or continue to buy it. It works via the media, that is,
newspapers or television; by shop displays, posters or mail shots; or through
the actual design of products themselves and their packaging (Stigler 1961).
1.1 THE GAP BETWEEN CONVENTIONAL AND ISLAMIC
ECONOMICS IN BUSINESS PRINCIPLES
In this paper, the term-‘conventional economics’ has been used as
synonymous to the ‘Capitalist and socialist or communist’ economic system.
‘Capitalism’ promotes the consumer and producer with boundless freedom to
maximize their utility and profit accordingly whereas ‘communism’ handing
over the all economic power to the bureaucracy and induces the imbalanced
allocation of resources ((Rice 1998, Akhtar et al, 2011). In addition,
conventional economic system is just run by positive economics (explain the
facts) and avoid the normative economics (value judgments, ethical precepts
and norms of fairness) (Friedman 1979:19, Chapra 1995:29). As a result, in
contemporary world, the firms and industries manipulate information to
maximize their profit at the cost of consumer and also use unfair means such
as women, nudity, sexual appeals, and false oaths through advertising to
attract the consumers (Saeedet al., 2001). Conversely; Islamic economics
combines the positive and normative economics in its principles to ensure the
highest profit and welfare, for all economic agents including society. Hence,
Islamic economics demotivates the businesses only for profit maximization.
Allah says in The Holy Quran, “Wealth and sons are attractiveness of the life
of this world; but the things that endure, good deeds, are the best in the sight
of Allah, as rewards, and best as the foundation for hopes (Al-Quran, 18:46).”
Besides, in ‘Islamic Business principles’, a business must contain some
fundamental attribute such as truthfulness, politeness and leniency in
transactions, accurate information about measurements, quality, price and
defects of the products, options to return the defected products, payments of
zakat and donation (Al-Quran:83:2-7). There is no option of stealing, lying,
3. Thoughts on Economics 19
fraud, swearing, over praising, hiding information, false oaths, nudity,
falsehood in Islam (Al-Tirmidhi: 1211, 1215). Islam also offers rewards and
punishments for honest and dishonest transactions. The holy Prophet (Peace
Be upon Him) said, ‘the truthful trustworthy merchant is with the Prophet
(pbuh) on the Day of Resurrection (Al-Tirmidhi: 1213). This paper compares
both conventional and Islamic theories of information and advertisement, and
then shows that, without ethics and Islamic principles, the misuse of
information and advertisements may not be avoided to ensure the maximum
welfare for the people. It also depicts that, Islamic information and
advertisement theory is more effective than that of conventional economics.
1.2. OBJECTIVE OF THE STUDY
The prime objective of this paper is to analyze the theories of information and
advertisement economics both in conventional as well as Islamic approach and
show the key differences between the two approaches. More specifically, the
aim of this article is to prove as to, why Islamic theories of information and
advertisement are superior to conventional theories of information and
advertisement
1.3. METHODOLOGY
The “Constructionism” epistemology has been employed in this paper. The
theories, opinions and arguments are constructed and evaluated in view of
conventional and Islamic economic approach. Cakir (2008) pointed out that,
Constructionist learning is highly motivated by the constructivist theory of
learning and Constructivist theory offers the learning through which a single
learner can build a particular model to know the world. On the other hand,
Constructionism elucidates that, an individual can only effectively learn by
connecting their tangible objective experiences with their cognitive
interpretation (Piaget 1967). Besides, it does not accept the objective
knowledge without human interpretation. Crotty (1998) further explains that
there is no meaning of anything without mind. Saeed et al (2001) and Bari et
al (2011) used the same epistemology to integrate ethics in business policy for
the Muslim world clearly.
Besides, different books, research articles, theories and model have been reviewed to
prepare this paper. For Islamic context, the citations have been taken from the Holy
Quran and the Hadith of the prophet (pbuh).
4. 20 Economics of Information and Advertising ……………..
1.4. LITERATURE REVIEW
Between the eighteenth and twentieth century, the economists including Adam
smith (1776), Marshall (1928), Weber (1925), Sismondi (1814), Mill (1848)
and other antecedents were concerned about the problems of imperfect
information, but not introduced any model to solve the problem of information
asymmetry. In 1945, Hayek clearly pointed out the information problem in
theoretical aspects through a competitive equilibrium model. Among other
leading economists, Stigler (1961, 1983), Machlup (1962), Akerlof (1970),
Spence (1973), Arrows (1964, 1973) and Stiglitz (1974, 1975) contributed to
the development of Information economics (Bagwell 2001). Akerlof, Spence
and Stiglitz got Nobel Prize for their formulae to correct the problem of
market arisen by asymmetric information.
Stigler (1961) discussed the power of information, the nature of search to
acquire information and searching cost of information. He also showed that
how advertisement responses to costly information. Akerlof (1970) explicated
the market mechanism by a superb comparison between the cases of
asymmetric and symmetric information through the example of lemons (bad
cars). Spence (1973) and Stiglitz (1975) introduced the “theory of signaling”
and “theory of screening” to solve the adverse selection and moral hazard
problem respectively. Stiglitz (2008) considered the advertisement as the
market response to reduce the information gap.
At the turn of the different centuries, advertising was a fertile topic for
economic research. Marshall (1890, 1919) presented an early idea of
advertising economics. Like information economics, a good number of
research has been done by the top economists including Chamberlin (1933),
Robinson (1933), Kaldor (1950),Wilson (1967) , Nelson (1974), Becker
(1977, 1989), Luski (1988), Murphy (1989), Laffont (1992), Greene (1996)
Bagwell and Ramey (1987, 1994, 2001) and so more (Bagwell:2001). Bagwell
(2001) in his paper explicated the introduction, historical background, and
theoretical as well as empirical analysis of advertising.
Similarly, Different research works in Islamic perspective have been
conducted on advertising economics, but the works especially on information
economics are very few in number. Furthermore, Islam has already designed
the basic principles of information and advertisement through the Holy Qur’an
5. Thoughts on Economics 21
and the Hadith of the Prophet Muhammad (pbuh) (Mannan1984:256-259).
During twentieth century, Islamic economists including Mannan (1970, 1984),
Afzal (1980), Chapra (1996), Tahir, Ghazali, Omar, Agil, (1992), Kahf (1978),
Sharif (1999), discuses the information issue in their books and articles
respectively (Hamid 2009). Among the recent works, Mohsin et al. (2010)
elucidated the offensive advertising from the viewpoints of Malaysian
Muslim. The paper of Bari et al (2011) explained the advertisement from a
Muslim world perspective while Akhter (2011) conducted the research on
ethical issues in advertising in Pakistan. But the field of information
economics had not yet been highlighted in these works.
However, my research work is different from the earlier researches that have been
done. The aim of my research paper is to analyze the economic aspects of information
and advertisement and thereby compare them in view to conventional as well as
Islamic economic approach. It also demonstrates the significance of ethics in
business.
2. INFORMATION AND ADVERTISING IN CONVENTIONAL
ECONOMICS
2.1. ECONOMICS OF INFORMATION: THEORETICAL
BACKGROUND IN CONVENTIONAL APPROACH
Information works as the most valuable and powerful resource between
consumers and producer, Consequently, information economics has been
emerged at about 1970, has unveiled the extent to which markets and other
institutions process and convey information. And thereby affects an economic
decision in an economy (Stigler 1983, Arrow 1999, Stiglitz, 2000).
However, the goal of Economic agents including both consumer and producer
is to maximize utility and profit respectively. Each and every Economic agent
desires information to maximize his state-dependent utility (Allen, 1990).
Fundamentally, the knowledge or information of the relevant facts helps the
people to coordinate their plan (Hayek, 1945). Moreover, the availability of
information betters off an economic agent while asymmetric information
makes him worse off (Akerlof, 1970). Asymmetric information is a situation,
where each participant in a market knows some things the others do not, and
does not know some things that other people do. Even the facts that people
think they know will any case usually not be hundred percent correct.
6. 22 Economics of Information and Advertising ……………..
Therefore, many of the problems like moral hazard and adverse selection of
markets and other institutions arise from costly information, and many of their
features are responses to costly information (Stiglitz, 2008).
The problems of adverse selection as well as moral hazard occur before and
after the selling product respectively. Adverse selection occurs because of
information asymmetries and difficulties in selecting customers’. For instance,
adverse selection problem will be visible when a product of a company is
selected by a certain group of people who offer the worst return for the
company (Mas-Colell, 1995:436-445). Moral Hazard takes place when an
individual alters his behavior and does not enter into a contract in good faith,
provides misleading information about the product, or has an incentive to take
unusual risks in a desperate attempt to earn a profit before the contract settles.
In this transaction, the other party bears the cost of his activities instead of him
(Krugman, 2009). Now, consider that, an insurance company faces the adverse
selection problem in selecting the buyers, because the buyer of insurance
knows better about himself than the insurance seller. If the client provides
wrong information or conceals it, the insurer has nothing to do. On the
contrary, after being insured, if the buyer be careless about his life style and
hope that the cost of any damage of health will be borne by the insurer –then
this will be an example of Moral Hazard for the company.
Akerlof (1970) discussed the effects of adverse selection problem in his paper
and showed that how the lemons (bad cars) drive the good cars out the market,
as a major cost of dishonesty. Michael Spence suggested the idea of signaling
(e.g., Level of education can be a signal of an efficient job candidate) while
Stiglitz offered the theory of screening (e.g., through the screening process, an
employee can earn more than the other colleagues with same qualification) to
solve the adverse selection problem and moral hazard problem respectively
(Spence 1973, 2002, Stiglitz 1975, 2008).
2.2. ECONOMICS OF ADVERTISING: THEORETICAL
BACKGROUND
Stieglitz (2008) considered the reputations, advertising and middlemen as
three important market responses to costly information. Because customers
believe that a reputed firm will not produce and sell bad product to cheat their
customers while firms believe that a reputed worker will not shirk. The second
7. Thoughts on Economics 23
response to imperfect information is advertising, because it provides direct
information about the characteristics of a brand. Information is generated by
advertising because of consumer power in the product market. The nature of
the power will vary significantly by search and experience qualities of the
product. The consumer can determine the “search qualities” by inspection
prior to purchase the brand such as the style of a dress and the qualities that
are not determined prior to purchase are called “experience qualities” e.g., the
taste of a brand of packed biscuit (Nelson 1974).
In addition, Identification of buyers and sellers through advertising reduces the
cost of search drastically (Stigler 1961).Because information is costly, both
producers and consumers must bear costs e.g., transportation and searching
costs to acquire and disseminate information. Just as customers search for the
lowest price and workers search for the highest wage, stores advertise to
provide information to potential customers concerning the location, price,
availability, and qualities of their products (Stieglitz, 2008).
2.3. ROLE AND NATURE OF ADVERTISING
Advertising plays a vital role to determine utility of the consumers. Marshall
(1890, 1919) mentioned two roles of advertising. The first one is called
constructive role when it provides information to consumers, so that they may
satisfy their utility at lower cost. Whereas second one is combative role
through which advertising may play a socially wasteful role, by offering little
information and serving only to redistribute consumers from one firm to
another.
By nature, Advertisement can be informative, uninformative or persuasive.
The informative advertising mainly affects demand by conveying information
to its consumer and enables them to respond to price and quality differences
(Ozga 1960, Stigler 1961). The advertised product thus faces a more elastic
demand with lower prices in the presence of production scale economies. It
indicates that advertised products are generally of high quality; even
uninformative advertising may provide indirect information that the quality of
the advertised product is high (Nelson, 1974). The probable reasons behind
that are: First, the efficient (low-cost) firms like the demand expansion
induced by advertising and thereby achieve the goal of demand expansion by
offering low prices and high-quality products. Second, this advertising
8. 24 Economics of Information and Advertising ……………..
rekindles the experienced qualities of the product that encourages the firms to
provide high-quality products for more repeat purchases. Third, the target
groups of the firms behind this advertising are those consumers who would
value its product most and give preference to other products. The informative
view holds further that the established firms use advertising to facilitate the
entry of other firms instead of restriction because, it helps the new-entrants to
provide price and quality information to consumers. In contrast, persuasive
advertising generally reduces the elasticity of demand by changing minds,
tastes and creating Brand loyalty (Robinson 1933). That advertising may
dissuade the entry of other firms and be the causes of higher prices. In this
case, Consumers are usually averse to buy new products of unknown quality
because of heavy advertising with asymmetric information. This effect may be
moderate if there are scale economies in advertising or production
The above literature suggests that, informative advertising is expanding the
product demand and supply promptly and more favorable for both consumers
and producer compared to persuasive advertising. Besides, Chamberlin (1933)
told that the net effect of advertising cannot be determine by theory alone,
since the overall effect is influenced by the extents to which (i) advertising is
informative or persuasive, and (ii) scale economies in production and
advertising exist.
2.4. THE COSTS OF DISHONESTY AND QUESTION OF ETHICS
Akerlof (1970) finds the costs of dishonesty arisen by asymmetric information
in an economic transaction. These are - firstly, the bad or low quality product
drives the good or high quality product out the market. Secondly, the dishonest
dealings tend to drive honest dealings out of the market. Thirdly, purchaser is
cheated, and finally, the loss incurred from driving legitimate business out of
existence. It occurs in a market where goods are sold honestly or dishonestly;
quality may be represented, or it may be misrepresented. In other way, to
explain the effects of dishonesty, Schmalensee (1978, 1992) demonstrates that
low-quality brands may advertise more, if consumers are responsive to
advertising and a sufficient cost difference exists between high- and low-
quality productions. Even a low quality firm may make the consumers fool
through advertising and obtain the high quality price. Though Kihlstrom and
Riordan (1984) think that, these deceptions by a dishonest firm usually not
sustain due to the experience qualities of the products (Bagwell 2001).
9. Thoughts on Economics 25
Similarly, advertising may make consumers less price sensitive by
manipulating their tastes and desires, and pressures the market to move further
from perfect competition towards imperfect competition. This makes the
consumer worse off; because perfect competitive market generates more
output than the imperfect competitive market (Varian, 2010:447-448).
Now, it can be said that, because of individual’s boundless freedom in free
market economy, the conventional economics has not yet made any
fundamental principles of information and advertising economics. To
disseminate the proper information, to make effective the huge advertisement
expenditures and to avoid the negligence of social as well as moral aspects, an
integration of ethics in business is inevitable. Singh (1998) found that the core
problem in contemporary advertisement is the absence of any plausible code
of ethics. Ethics can be defined as the moral principles that make a distinction
between right and wrong and between good and bad (Beekun, 1997: P 2). The
reason behind that, laws are not always effective to overcome a problem and
left some areas untouched to apply other attempts (Weiss, 2003). For instance,
telling a lie is not considered a crime or an illegal act in law but considered an
unethical act that can create many social problems.
3. INFORMATION AND ADVERTISING IN ISLAMIC ECONOMICS
3.1. ECONOMICS OF INFORMATION: ISLAMIC APPROACH
Information is also the most valuable and powerful resource in Islamic
economics, in some areas more than the conventional economics, since Islam
reckons it as the prime condition of the Barakah (blessing) in a transaction. In
Islamic economics, information is the fundamental right of all economic
agents. In addition, it is obligatory for both consumer and seller to be honest,
truthful to reveal appropriate information as foremost responsibility. The
Prophet (pbuh) said: "The seller and the buyer have the option to accept or
cancel the transaction until they part it; and if both parties spoke the truth and
described the defects and qualities (of the goods), then they would be blessed
(Barakah) in their transaction, and if they told lies or hid something, then the
blessings of their transaction would be lost (Al-Bukhari, 3:293). So there is no
option of asymmetric information in Islamic economics, because here,
concealing information or over-praising a product is strictly prohibited. The
Prophet (pbuh) said: “Try not to praise products to other, the swearing may
10. 26 Economics of Information and Advertising ……………..
persuade the buyer to purchase the goods but that will be deprived of Allah's
blessing (Al-Bukhari-3:300,301).
Furthermore, the scope of asymmetric information arises if the economic
agents try to exaggerate or conceal information or tell a lie in a transaction.
Similarly the problem of adverse selection and moral-hazard occurs for the
same reasons. But cheating and lying is austerely forbidden in Islam.
Abdullah-bin-Umar Narrated: A person came to the Prophet and told him that
he was always betrayed in purchasing. The Prophet told him to say at the time
of buying, "No cheating” (Al-Bukhari-3:328).The prophet (pbuh) compared a
liar to a hypocrite and said “The sign of a hypocrite are three 1. Telling a lie.
2. Breaking the promises. 3 disloyalties” (Al-Bukhari-1:32).
Islam incorporates the fairness and justice as necessary and sufficient
condition for a safe transaction to abolish the option of information gap, and
thereby ensures maximum welfare for all economic agents. Fairness refers to
the features and quality that is being informed and perceived by the people,
should be there in the product and justice means the handing over the right
product to people as informed before. Allah says, “Standout firmly for justice,
as witnesses to Allah, even though it be against yourself, or your parents, or
your kin, be he rich or poor”(Al-Quran-4:135). According to Islamic
economics, the seller of lemon, in Akerlof’s model, must disclose the defects
of it, even in fear of loss in business, otherwise he will be ruined. The Prophet
(pbuh) said” whosoever sells a defective product without disclosing its defect
to purchaser, shall earn the permanent anger of Allah and the angels
continuously curse the person (Ibn-Majah-3:2247). He also said, “The
merchants would be raised on the Day of Resurrection as sinners, except those
who fear Allah and are pious and truthful (Al-Tirmidhi: 1214). So in an
Insurance market, if buyer of insurance hides information about himself to
gain, it will be Haram and illegal income for him.
3.2. ECONOMICS OF ADVERTISING: ISLAMIC APPROACH
3.2.1. THE ROLE OF ADVERTISING
In Islamic economics, advertising is neither condemned nor accepted in a very
high esteem (Mannan-1970: 206-208). Besides, it is ratified with respect to
some conditions. Marshall (1890, 1919) told about two roles- constructive
role and combative role of advertising. The constructive role might be
11. Thoughts on Economics 27
achieved through informative advertising .Islam strongly supports it for
educating the customers and it is consistent with Islamic principles of
beneficence; Islamic economics assumed that an Islamic firm always seeks to
minimize the imperfection of market as far as practicable. Besides, all forms
of economic exploitation including the advertisements as artificial barriers to
entry to earn abnormal-profit are not permissible in Islam (Mannan, 1970). So
Islam permanently welcomes this role for its welfare mode.
However, the aggressive or uninformative advertisements intended to deceit or
manipulate the demand is clearly against the spirit of Islam; it involves the
wastages of resources and implies its misallocation (Mannan-1984).
Moreover, any valid economic activity of the market which may cause moral
and social degradation from Islamic viewpoint will not be permitted in Islam
(Ibn-Qayyim-1955). So the advertisements that produce wasteful role and
harmful outcome for society are unlawful in Islam. The prophet (pbuh) said;
Allah will neither speak to, nor look at, nor absolve from the impurity of their
sins of three types of persons; they shall be ruined. One of these is ‘who sells
goods by false oaths (Reported by Abu Dhār in Muslim, Mannan1970).
3.2.2. NATURE OF ADVERTISING: INFORMATIVE ADVERTISING
Islamic economics allows informative advertising to educate consumers about
the product. Islam says that, both positive and negative information of the
product must be disclosed through advertising and misleading information
should be avoided (Al-Quran-83:2-7). It also concerned about “the rights of
the consumer to complain against the product if they are deceived” (Ibn-
Majah-3:2199). Any false oaths on warranty or guaranty have been reckoned
as a sin and cheating. The Prophet (pbuh) said, He who cheats is not one of us
(Ibn Majah-3:2224). He also said: Allah says: "I make a third with two
partners as long as one of them does not cheat the other, but when he cheats
him, I depart from them (Abu-Dawud-22:3377).
It is usually seemed that, the searching costs of consumer decrease due to
advertisement of the product, but the actual fact is totally reversed (Mannan-
1984). The producers directly or indirectly shift the advertising expenditure on
the shoulder of consumers, and force the consumer to finance the expenditures
without their consents (Hamid-2009). Instead, Islam never permits the
activities of extravagances and wastefulness and recommends that advertising
12. 28 Economics of Information and Advertising ……………..
should be brief and to the point, concisely describing the product without
going to extremes that may be the cause of price hike. Allah says: “and waste
not by extravagance. Verily, He likes not Al-Musrifoon (extravagant).” (Al-
Quran-6:141) and “But spend not in the manner of a spendthrift. Verily, the
spendthrifts are brothers of the Shayaateen (devils)” (Al-Quran-17:26-27).
3.2.3. PERSUASIVE ADVERTISING
The Prophet said, "A time will come when one will not care how one gains
one's money, legally or illegally” (Al-Bukhari-3:275). Since, Persuasion is
haram (illegal) and harmful for the society, persuasive advertising is forbidden
in Islam permanently (Al-Bukhari-3:300). In contrast, the scene is reversed in
the contemporary advertising; it uses different tools and ways of persuasion to
attract the consumers. Among these, women, Nudity, obscenity, sexual
appeals, Music, song, lie, bluffness, and exaggeration, incomplete or imperfect
information, against social, cultural and religious norms-are mostly used tools
in the world (Saeed et al., 2001). These tools are strictly prohibited in Islam
(Al-Bukhari-1:17, 23). The glamorous Women are vastly used in advertising
by exposing their body parts just to enhance the attention of consumer to the
products (Akhtar et al., 2011). Alarmingly, such types of obscenity and nudity
captured the advertising industry through the scene of short dressed women,
women’s’ bathing, excited song, free mixing of men-women, private moment
of men-women and so more (Chachula et al., 2009). Islam allowed women to
partake in business activities, but not to mislead people by emotional and
sexual stimulation. For a woman in Islam is not allowed to show any part of
the body except face, hands and feet. Allah says “Say to the believing men and
women that they restrain their looks and guard their private parts. That is
purer for them (Al-Quran-24:31-32). Moreover, the Prophet (pbuh) prohibited
the prices and earnings of singing girls (Al-Tirmidhi-14:1286).
The advertisements and the advertised products having the idea, spur, and
scene, against social, cultural, moral and religious norms are sternly forbidden
in Islam. The Prophet (pbuh) said; ‘every intoxicant is harmful and forbidden
in Islam (Abu-Dawud-26:3672) and also said-bashfulness (Haya) is a part of
faith. The term-"Haya" means self-respect, modesty, bashfulness, and scruple,
etc. ((Al-Bukhari-1:8). From the intention of social norms, Islam bans the
advertisements of controversial products, services and concepts such as
13. Thoughts on Economics 29
Alcohol, cigarettes, female contraceptives, male and female under garments,
condoms, dogs, tattoo, pornography, prostitution, unconventional sexual
practices etc. (Waller et al. 2005).v The Prophet (pbuh) forbade the sale of
wine, dead animals, pigs and idols, game of chance(Gambling), card playing,
the price of blood and dogs and earnings of a prostitute and singer (Al-
Tirmidhi-14: 1283-1286).
3.3. THE COSTS OF DISHONESTY: ISLAMIC CURE
In Islamic economics, the goal of consumer and producer is to maximize the
utility and profit with social welfare instead of only utility and profit
maximization in conventional economics. Islamic economics assumes that,
they will consider the advantages and disadvantages of each-other (Tahir et al-
1992, p-77-127). In addition, Islam also offers the rewards and punishments
for honesty and dishonesty in worldly as well as hereafter life. The Prophet
(pbuh) said: No flesh which has grown out of unlawful things has got better
claim to Hell-fire (reported by Jaber, Musnad-Ahmad,-Sharif-1999, p-50-55).
Hence, Islam emphasizes more on hereafter life than the worldly (Al-Quran-
3:77). Prophet said: Be moderate in seeking worldly things, don’t engage fully
in worldly gain that may drive away you from Hereafter life (Ibn-Majah-
3:2142).
Akerlof (1970) showed that, the lemon (bad cars) drive the good cars out the
market –is the cost of dishonesty. But in Islam, there is no option to deceive or
to be deceived, to be a liar or be a victim, to conceal or overstate information
of the product. The income from such types of cheating and unethical business
activities will be considered as illegal or Haram (Al-Quran.2:188). The
Prophet said: A body, nourished by unlawful thing shall not enter Paradise
(Hadith of Abu-Bakr, Baihaqi, Sharif 1999). He again said, surely devil and
sin are present in buying and selling. So blend it with sadaqah (donation)
(Tirmidhi 3:1212). The Messenger also warns that: Who purchases a cloth
with ten dirhams wherein one dirham is unlawful; the Allah shall not accept
his prayer (Hadith of Ibn-Omar Musnad-Ahmad, Sharif 1999). According to
Islam, in the example of lemon, a seller will definitely expose the defects of
the cars. If the seller, due to dishonesty or unintentionally, failed to reveal any
defects of the products to buyers, must be revealed later. He must also replace
the lemon if the buyer comes back. The prophet said: "Whoever agrees with a
Muslim to cancel a transaction, Allah will forgive his sins on the Day of
14. 30 Economics of Information and Advertising ……………..
Resurrection. I.e. if the buyer wants to return the defected commodity; then
seller should accept the request. It is a deed of great reward and moral duty but
not a legal responsibility (Ibn-Majah-3:2199). He also said: "Allah will admit
to paradise a man who was lenient in selling and buying (Ibn-Majah-3:2202).
Finally, it can be said that, Islamic information and advertising theory is more
effective than that of conventional economics to rectify the anomalies of the
market relating to information and advertisements. This implies that, Islamic
economic system can ensure highest utility and profit of the consumer and
seller respectively.
4. SUMMARY OF DISCUSSIONS AND FINDINGS
In sum, conventional economics permits the market to operate freely where
every economic man works for profit maximization. Due to lack of
intervention and morality, economic agents manipulate information through
persuasive and uninformative advertising to maximize profit. Recently,
unethical ideas, means and conducts are highly used in advertising which
worsen the market. As a result, dishonest business drives the honest business
out the market. Thus conventional economics feel the need of moral filter. In
contrast; Islam makes it mandatory to reveal correct information of the
products while forbid the hiding information, misuse of women, nudity and
deception in advertising. It also encourages the attributes like honesty,
politeness, bashfulness and discourages the dishonesty like persuasion in
business transactions. Moreover, rewards and punishments are also available
for activities in Islam
The gist is- The outcome and welfare of all economic transactions are highly
influenced by the information. An integration of ethics and Islamic principles
to information can generates the highest possible profit and welfare for the
society. The findings imply that, Islamic information and advertising theory is
better than the conventional theory.
5. LIMITATION AND SCOPE FOR FUTURE RESEARCH
Information economics is a wide field in economics and Islam is the complete code of
life. This paper is just an attempt to point out the Islamic information and advertising
code and compare it to the conventional economics. But, to test the applicability of
Islamic code, an empirical research is needed. In addition, the manipulation of
information and the malpractices of advertising generate a lot of social, moral and
15. Thoughts on Economics 31
cultural problem in the world. This paper highlights only a small number of them. A
deep research on Quran and Hadiths of Prophet Muhammad (PBUM) is necessary to
implement it for the society.
CONCLUSION
The integration of Islamic principles with the conventional economics is necessary to
make the information safe and accurate to maximize the social welfare through an
efficient allocation of resources. The wide application of Islamic economic principles
can remove the misuse of information and advertisements in business all activities.
Besides, the findings of this paper appeal that, normative analysis should be included
in conventional economics to rectify the anomalies of information and advertising
and thereby it may generates highest level of welfare for the society.
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Surah no. 24: verse: 31-32
Abu-Dawud, Volume: 1, Hadith No: 3377, 3672
Al-Bukhari, Sahih; Volume: 1, Hadith No: 8, 17, 23, 32 and Volume: 3, Hadith No: 275,293,
300,301, 328
Al-Tirmidhi, Book: 14, Hadith No: 1211-1215, 1283-1286
Allen, Beth. Information as an Economic Commodity, American Economic
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Quarterly Journal of Economics, 84 no.3 (1970):488-500.
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