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Showing posts with the label income and substitution effect

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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Economics in Real Life- Government Interventions and Economics

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  In the past, many posts have sought to demystify economics in terms of its applications to real life. Economics at subconscious level and at conscious and deliberate level does affect human decision making as illustrated numerous occasions in the past posts. The current post too is a continuation of the same and seeks to take further the real life applications of economics. In this post, there would be discussion on government interventions and economic decision making of the agents. Many a times the government has to intervene to direct the micro agent behaviour into a trajectory it desires. The finance minister has announced a special LTC cash voucher reimbursement scheme for the block 2018-21. Under the scheme, the employees can opt for this scheme in lieu of LTC for the said block. This might make sense since those employees who have not availed of the LTC might opt for this scheme. Many employees would not perhaps avail the concession owing to the current situation. In some wa
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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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