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Showing posts with the label latent supply

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

The Chicken-Egg Conundrum of Economics

  Economics as we know it is all about human behaviour. It is about a human response to a stimulus. Economic agents might be organizations or firms or families or collection of individuals etc. but each of these are constituted by humans. In fact, evidence from animal and plant kingdom too demonstrate economics at work in their responses to various stimuli. The response revolves around the self-interest of the economic agent, individual or aggregate. Yet the response manifested in self-interest of the individual economic agent might not essentially translate into aggregate self-interest. These responses to stimuli are studied across the various contexts. An important discussion on this stimulus-response mechanism happens in the context of the markets.   Markets are basically the interaction between buyers and sellers. In economics terms, it is about the interface between the supply and demand.   Herein lies the question about the determinants of supply and demand and their conseque