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Showing posts with the label marginal costs

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- Amusement Parks and Touring Exhibitions

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  Many past posts have discussed the applications of economics in real life. The modus operandi in each post has been simple. Take an example from real life and discuss how economics consciously or subconsciously plays a role in the same. The events one observes in life are many and diverse. Each ins unique yet perhaps to a keen student of economics, these manifest in many possibilities of economics lies underlined in their demonstration. The current post too will take this forward and brings few more examples that add lustre to economics in life. Real Life Practice/ phenomenon Economics Linkage Unlimited rides in Amusement Parks In India, amusement parks came in much later and it is only in the last twenty odd years, they have spread to many cities. Any visitor to an amusement park would notice an interesting observation. They charge a fixed entry fee and offer unlimited rides for the visitors. One might wonder the reasons behind th
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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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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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