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Showing posts with the label equi marginal utility

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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Economic Tidbits of Sporting Events

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Sporting events attract fans and fan loyalty. As a matter of fact, across countries and provinces and towns sports can be great unifier and great divider. It is a paradox of sorts yet a fact. There is a loyalty towards a team and as the two teams or two individuals compete for a prize in their sporting event at different layers, the loyalty translates into an emotional outpouring of support which in itself is competitive. The emotions that come out from the rival supporters create divisions often difficult to heal at times. Each sporting event is a competition for a trophy. The trophy is inelastic conceivably to a large degree. There is just one prize on offer and just because many compete, the number of winners on offer doesn’t increase. The winner gets the rewards disproportionate to the others and thus most sought for. This operates at every layer. Even in the schools, the inter-school competition within the city or the sub-district or the district are the most sought after.
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A Primer on Real Life Action and Economics- I

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We often use economics subconsciously as we go about our daily routine. Economics is about human actions and behaviour and we engage in plenty every day from birth to death. These actions consistently demonstrated over period of time reveal patterns that build up the theoretical and conceptual foundations in economics. Quite often, many actions undertaken either in personal, social, or professional capacities might occur without any explicit linkage to economics but each of those actions perhaps reveal something about economics and its idiosyncrasies in life. Presented below are few examples in tabular form. 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 Free E-mail services It might be puzzling to find why Gmail offers free email services. Given the server capacity they possess, any addition of extra user to
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Rational Spending Rule : To be rational or not

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Rational spending rule, despite the abstract derivation, can be used to make sense of several real world phenomenon.                                                 Some cities have grown vertically while the rest have grown horizontally. To use popular analogy, it can be described as the lift vs the car model. The answers can be sought in utility analysis. Cities which are short of space find it difficult to accommodate people close to the city center. The cost of land being high deter people and either move them to the margins or compel to look at alternatives. Similar is the case with commercial space in land starved locations. An analysis would probably reveal a greater spending on alternative goods than housing.   It need not necessarily be for upper income groups alone. Experts have often wondered on the increased consumption of consumer electronics or durable goods in poorer localities. Dharavi in Mumbai may not have enough space to provide basic housing and sanita
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Formula 1 Constructors, Champions and Elasticity of Supply

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Formula 1 World Constructors’ Championship is won every year based on the points system determined through the Grand Prix results. It is calculated by adding the drivers points in each Grand Prix. In more than half century of championships only 14 constructors have been successful. Further these constructors have come only from four different nations. The most successful is the Scuderia Ferrari which won it 16 times.   Only 12 teams compete in this race from all across the globe of which one wins the top position. The victory in the championship yields tremendous dividends. As we know, participation is limited implying FIA which runs the races is operating in monopsony market. Demand for slots is high with highly inelastic supply.   Why would firms spend billions of dollars to gain that FIA constructors crown.   In fact in recent years, thanks to increasing expenditure on technological improvements, firms have gone bankrupt. Adding to this cost is the astronomical fee of 4
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