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Showing posts with the label Price elasticity of demand

Decision Making as Output and Bounded Rationality

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  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
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The Economics of Plant and Animal Milk

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  A couple of days, one chanced upon a tweet by PETA on animal milk and its impact as against the use of plant milk. Implied in the tweet, given the way animals are milked, it would make sense to shift to plant based milk. Without doubt, it sounds quite great in theory. It is well documented on the treatment of animals as they are milked in the industrial farms. In the earlier days, the animals were milked at home. Normally, there would be few cows/buffaloes that would be reared. These would be milked as against the demand for the product. There would of course some amount that was milked for self-use. Yet with passage of time, the demand for milk increased while the agrarian families usually engaged in rearing cattle declined. There was a shift to the urban centres owing to industrialization. The demand for milk in urban centres had to be met by relatively lesser number of agrarian families owning dairy farms thus necessitating the transportation of milk. This invariably led to impro
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Indian IT Industry and the Udupi Hotel

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Mr. Narayan Murthy once described the business model of the Indian IT industry as an Udupi hotel model. The reference originates from the Udupi hotel which have a frugal business model based on cost volume equations. The hotels tracing their roots to coastal Karnataka town of Udupi, are usually frugal, offer no frills, usually standing only and drive their business model through a combination of low prices compensated with high volumes. In economics, the quantity demanded is a function of the price elasticity of demand. As the price increases, the law of demand posits a decline in quantity demanded and vice versa. Yet, what is of interest would be the degree of change in quantity demanded following a change in price. To goods with characteristics of being price elastic, the decline in prices leads to more than a proportionate change in quantity demanded thus the lower prices compensated by higher volumes. For goods which are pretty inelastic, the change in price results in less
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The Semantics of Group Based Discrimination

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As one visits Red Fort or Elephanta Caves, there is an interesting anomaly while buying the entrance ticket. Indians and foreign nationals are charged differently for what essentially is the same offer.   In railways or in bus services, senior citizens are offered concessions while buying tickets. They normally pay around half the price than the normal customer. Students too have concessions while purchasing a season ticket or as it is popularly known as monthly pass. In Karnataka there is demand for concessions in monthly passes or daily tickets on city bus routes for women engaged in garment factories. Recently as a poll gimmick, Delhi government made travel free for women in Delhi transport buses. Students belonging to Scheduled Castes/ Scheduled Tribes/ Backward Classes etc. often get free studentship to cover their cost of studies. Last year, the central government introduced reservations in government jobs for candidates belonging to Economically Weaker sections. For many year
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A Primer on Real Life Action and Economics -II

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The post ‘ Primer on Real Life Action and Economics-I discussed how real life instances are theorized through the conceptual prism of economics. The current post continues the discussion applying the concept of economics to more areas. Like in the previous post, 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 Live events Humans enjoy live action. They love going to stadiums to watch sports events, visit theatre to enjoy live theatre performance, visit musical shows preferring their genre and likes. An interesting pointer would be an analysis of these live events through the economics angle. There is obviously the angle of utility maximization. People prefer entertainment and leisure and these activities offer the same to the consumers. Therefore they seek to maximise their utility by at
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