Primer on Real Life and Economics - III

In the previous posts on Primers in Ecnomics, examples were discussed here and here on how economics makes its presence in day to day life. The overarching theme was the reflection of rational economic behaviour under constraints as we go about our daily routine. It is time to continue the discussion taking economics into more aspects of life. Some examples are presented below.

Like in the previous cases, one column highlights the real life phenomenon what we observe, while the second column builds up the theoretical linkage to economics.

Real Life Practice/ phenomenon	Economics Linkage
Sports coaching classes	Come summer holidays, parents will seek outcompeting with each other trying to find a place for their wards in numerous summer camps, sports coaching classes, art classes among others. At first glance, it seems that the parents many of them double income couples in nuclear families would want a way to keep their children busy with some constructive activity or so. Yet the craze for sports coaching classes does not merely confine to summer holidays. Post school, parents would drop their kids to cricket coaching classes to martial arts classes to tennis classes to football coaching classes to dance classes to music classes to name a few. The sports coaching centres too seek to advertise themselves with promises of the next IPL player or the next Roger Federer or all sorts of promises. The parents without doubt are attracted towards the same. These sports and arts coaching classes exist in monopolistic competition seeking to differentiate themselves from the rest in terms of quality of offerings. It is pertinent to remember they are near substitutes. The kids have limited time to take part in these activities given their pre-occupation with formal education and linked coaching classes. Therefore any kid is unlikely to enrol for than one or two extracurricular coaching activities.  Therefore all the more need for these centres to distinguish themselves with certain unique selling propositions. Thus they seek to highlight their achievements. Perhaps not even one percent of their wards might reach the apex but each student moving into an upper layer pyramid, is an incentive for them to build further. The parents too respond to the incentives. The incentives lie in the spill overs their kids generate when they get selected into the district or perhaps state level contests and win prizes. There may one be one Sachin Tendulkar or a Rahul Dravid but the fact that there lies a chance no matter how low is enough for parents to push their children to enrol for these classes. The same principle that holds good for the so-called craze of engineering or medicine holds good in sports coaching classes. People respond to incentives.
Beauty contests	Inherent in every human being is a desire to be the most handsome or beautiful of all. Therefore when a contest emerges to judge the beauty of an individual however subjective it might seem, it would be natural for people to seek an opportunity to participate and perhaps capture the top honours. A Miss Universe contest takes place in multi stages from the regional levels to the national levels to the international level. Therefore the barriers of entry at each stage are significantly higher. A girl wanting to participate in the contest might have send a portfolio based on which selection might be made. The elimination rounds will perhaps leave only a few in the field for the national finals. There is only one per country who goes to compete with other competitors from the rest of the world and seek to capture the prize. The title is perfectly inelastic. Only one title per year. Only one chance for the participant. It is either make or break. The probability of any girl winning Miss Universe is very low to begin with. Yet there seems to be no dearth of participants in pursuit of capturing this elusive prize. The answer lies in the prizes on offer for the winner. It perhaps is more so when it virtually seems a winner take all or at least significant proportion of that. The difference in rewards between the winners and the rest is significant. It is at many levels, an opportunity to either capture the honours or disappear into oblivion. Despite the low probability of victory, the very fact that winner take all contest gives the disproportionate spill overs attract women all over the world. The women respond to incentives and therefore all the more desire to take part in the contest. A Sushmita Sen or an Aishwarya Rai is sufficient to motivate many women to express interest and seek to capitalise their opportunity. Many understand their chances remain low and thus after an attempt or two might leave the field. Some might hang around for quite some time even though they might make hardly any progress in the tournament. Nonetheless, the very attraction towards incentives acts as a spur for increasing interest in participation in beauty contests
Small land holdings in agriculture	Agricultural families have higher fertility rate. Invariably the children join the family occupation. With every generation, there is division of property. With the land remaining same, every generation post division yields a decreasing quantum of land. As the land decreases, the challenge is to generate maximum output for the land under cultivation. Maximising the output would imply taking care of soil fertility, application of fertilizers, other advanced methods of farming, using of tractors, other technological applications etc. Yet using these techniques necessitate higher costs. These costs are predominantly fixed in nature and thus can be recovered only at higher levels of output. Higher output might not be possible for smaller land holding sufficient to recover fixed costs. Therefore, it becomes difficult for small farmers to utilize technological benefits to increase their output. Large farms not only benefit from technological inputs generating scale, they also leverage scope. While small land holdings can leverage scope, the inability to play up the scale given the nature of land hinders their productivity. Therefore, smaller land holdings are susceptible to diminishing returns given that they tend rely predominantly on family labour to create the output.

The above examples again are a mere sample of countless instances that we encounter in daily life that would remind us of economics theories, concepts and models.