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Showing posts with the label Cobweb model

Decision Making as Output and Bounded Rationality

  The classical economics theories proceed on the assumption of rational agents. Rationality implies the economic agents undertake actions or exercise choices based on the cost-benefit analysis they undertake. The assumption further posits that there exists no information asymmetry and thus the agent is aware of all the costs and benefits associated with the choice he or she has exercised. The behavioral school contested the decision stating the decisions in practice are often irrational. Implied there is a continuous departure from rationality. Rationality in the views of the behavioral school is more an exception to the norm rather a rule. The past posts have discussed the limitations of this view by the behavioral school. Economics has often posited rationality in the context in which the choices are exercised rather than theoretical abstract view of rational action. Rational action in theory seems to be grounded in zero restraint situation yet in practice, there are numerous restra

Solving the Food Inflation Puzzle

The double digit food inflation shows no signs of abatement. Meanwhile, the headline CPI (7.35%) hits the highest point in recent years.   However, the core CPI has stagnated around 3.6%, WPI continues to be low and core WPI is in near zero zone. There is negative inflation in manufacturing sector as also in fuel and power. GDP deflator is less than 2%. In normal course, low real growth will translate into low nominal growth depressing the economic buoyancy. Therefore, barring food inflation, other components are well under control, yet unless food inflation is tamed, political costs are like to be substantial.   There are grounds to suggest the causes to usual inter seasonal volatility, but that would be short-sighted.   There exists an opportunity in the crisis long term solutions to agricultural production. In endeavouring a solution, there however lies a catch. Agriculture is state subject thus resulting in each state adopting a different approach. Further, farmers constitut