A TRYST WITH MICROECONOMICS
When Glen Hubbard and Anthony Patrick O’Brien sat down to write the Microeconomics text book, they for sure wouldn’t have had even the faintest idea that a student, from the southern part of the Indian subcontinent would leaf through the Appendix section, putting tick marks against concepts they had taken months to put into words. So before I go forward with my narrative of “A Tryst with Microeconomics” I would like to add a disclaimer that all the examples sighted in this narrative are from roots of my understanding and neither Hubbard and Patrick O’Brien nor my Professor for Microeconomics, Dr. Bala have anything to do with the mistakes that would have crept into this write up.
On the second day of the much awaited trimester break, I am sitting with my laptop trying to remember all the concepts I had absorbed during those lively Microeconomics classes. This very idea of write up was the result of rational[/b] people of my class who thought the write up was better than writing tests!!! The theatres across my hometown have all the latest releases running in full swing. The write up is essential to complete my course requirement. And my microeconomics professor knew “People respond to incentives[/b]”, so he declared marks for submitting this write up in time. So being a rational[/b] person, I sat down to write it. The opportunity cost[/b] is missing the movie “What’s Your Rashee” with my favourite actress Priyanka Chopra playing 12 different roles! Isn’t that what they simply call Trade off[/b] in Microeconomics?
Since this write up was at the back of my mind for some time now, I saw it was beginning to dominate the way I looked at things.
I paid a visit to the Bata showroom yesterday as it was time to give pension to my old pair of sandals. And what I saw there made my eyes go wide in surprise. Every single item of footwear had its prices ending in odd numbers “199,299,499...259.50...” and many more! I wondered if the chap sitting at the counter ever knew why he was selling things at this absurd numbers! Odd pricing[/b] was a way in olden days to distinguish goods of fine quality . Prices of goods made in Great Britain when converted to US Dollars gave these odd prices. People soon began associating odd pricing with fine quality. Some others believe that these odd pricings prevented cashiers from pocketing the money because they had to give customers change. However I left the store after getting a Re 1/- change from the cashier.
On reaching home I decided to spend some time browsing through my mails. A mail with the header “Special offers just for you at Spencer’s Hypermarket, Calicut” caught my eyes. On opening it I was surprised that Spencer’s knew my preferences by heart. A person without Microeconomics background would have been flattered at how such a huge business firm chose to know his preferences and respect them. The practice called Yield Management[/b] is used by firms to gather information on consumers’ preferences and the responsiveness of consumers to change in prices, and to use this information to rapidly adjust prices. This is a by product of Price discrimination[/b], by which firms charge higher prices to some customers and lower prices to others. Yield management would not have been possible without the widespread use of information technology.
Microeconomics principles aside, I quickly got ready and dashed off to Spencer’s to claim my goodies.
I hastily checked my wallet to ensure I had enough currency to fulfil any sudden wish that might crop us during the foray between the aisles. To be on the safer side, I stopped at the Punjab National Bank ATM and pushed the card inside. Approximately 10 years back, Keralalites wouldn’t have known PNB. The trusted bank of the state and the very first was The Nedungadi Bank, started by Shri. Appu Nedungadi, who incidentally was also the first novelist in the History of Malayalam literature. However Nedungadi Bank merged with PNB. This is a fine example of Horizontal merger[/b], which is a merger between firms in the same industry. Weren’t news making mergers like BPL telecommunications with Hutch and Hutch with Vodafone, Escotel cellular with Idea all examples of Horizontal mergers? Putting thoughts aside, I collected the crisp currency notes pushed out by the machine and walked out of the ATM counter.
Once inside the supermarket, I found myself recalling many a words I had come across in the pale green textbook of Microeconomics. The first item of my list was fresh bread. When I selected the newest of the bread on the shelf, it occurred to me that I must also purchase a bottle of jam to go with it. In short I recalled that Jam and Bread were Complements[/b] which are goods used together. On the very next shelf was a can of peanut butter which was a Substitute[/b] to jam. Substitutes as the name implies are things that can be used instead of each other.
Walking away from the food section, I made my way to the aisle that housed detergents as that was the next item on my list.
On a closer look at the shelf for detergents I noticed that Surf Excel was now coming with added features like fragrance which was earlier absent. This action by Unilever is called Brand Management[/b], which is the action taken by a firm to maintain differentiation of a product over time.
What section better than that of vegetables can make a vegetarian soul happy at a supermarket. With the cropping of Reliance Fresh and Spencer’s, the vocabulary of vegetables that a common man possessed has been increasing widely. Broccolis, zucchinis, etc had overshadowed the commonly used vegetables in Kerala. Tapioca called Kappa in the local language is an underground tuber whose demand rises when there is a government strike and very soon when the strikes are over and incomes resume people switch back to fancy carrots and beet roots. Hence I would put the poor Tapioca under the category of Inferior goods[/b] whose demand increases as income decreases and decreases when income increases.
After claiming all the discounts Spencer’s had set aside for their privileged customer, that is me, I was thinking of engaging myself in some window shopping when the new Mobile service provider, Tata Docomo’s huge hoarding caught my eye. Call anywhere in India at 1 paisa per second. I had listened to my microeconomics professor talk at length about this Dominant strategy[/b] by Tata. A dominant strategy is the best strategy chosen by a firm, no matter what strategies other firms use. About 10 feet away from this huge hoarding was another hoarding equally big that proclaimed “Call Calicut to Karnataka at 50ps per minute”. The service provider was Vodafone! It went on to say that STD calls throughout India can be now made at 50ps per minute with a booster pack. Clearly Vodafone had chosen a strategy for maximising its profits based on that chosen by Tata Docomo. This can be an example for Nash Equilibrium[/b] where each firm chooses the best strategy, given the strategies chosen by other firms.
That was seriously a lot of Microeconomics in a day, I made my way to the famous fruit market in my city to get a few fruits for my mom. There were some thoroughly inviting golden yellow mangoes on display. Many a time shoppers like me who are not frequenters to these markets fall a prey to buying mangoes based on their outward appearance. The hawkers would also convince people like us that they were the tastiest mangoes money could buy. Here is the case of Asymmetric Information[/b] where one party in an economic transaction has considerably less information than the other. The mango hawker had more information about the quality of mangoes than me. I might fall prey to an adverse selection of buying low quality mangoes, which is a classical example of Adverse selection[/b], which is the situation in which one party to a transaction takes advantage of knowing more than the other party to the transaction. I moved away from the mangoes recalling the two old proverbs I learnt as a kid. “Beauty is only skin deep” might certainly have been a proverb coined by an economist as opposed to “A thing of beauty is a joy forever” probably said by a philosopher.
On reaching home, I counted the concepts of economics that flashed through my mind in a fleeting succession. I was amazed that I had come across 16 concepts of Microeconomics in a span of 24 hours (Subtract from it the 8 hours I slept), hence once concept an hour!!! My mind was filled with renewed interest and respect for the subject. Microeconomics certainly reasserts the famous saying that “Little things do not mean a lot, they just mean, Everything”!!!
When Glen Hubbard and Anthony Patrick O’Brien sat down to write the Microeconomics text book, they for sure wouldn’t have had even the faintest idea that a student, from the southern part of the Indian subcontinent would leaf through the Appendix section, putting tick marks against concepts they had taken months to put into words. So before I go forward with my narrative of “A Tryst with Microeconomics” I would like to add a disclaimer that all the examples sighted in this narrative are from roots of my understanding and neither Hubbard and Patrick O’Brien nor my Professor for Microeconomics, Dr. Bala have anything to do with the mistakes that would have crept into this write up.
On the second day of the much awaited trimester break, I am sitting with my laptop trying to remember all the concepts I had absorbed during those lively Microeconomics classes. This very idea of write up was the result of rational[/b] people of my class who thought the write up was better than writing tests!!! The theatres across my hometown have all the latest releases running in full swing. The write up is essential to complete my course requirement. And my microeconomics professor knew “People respond to incentives[/b]”, so he declared marks for submitting this write up in time. So being a rational[/b] person, I sat down to write it. The opportunity cost[/b] is missing the movie “What’s Your Rashee” with my favourite actress Priyanka Chopra playing 12 different roles! Isn’t that what they simply call Trade off[/b] in Microeconomics?
Since this write up was at the back of my mind for some time now, I saw it was beginning to dominate the way I looked at things.
I paid a visit to the Bata showroom yesterday as it was time to give pension to my old pair of sandals. And what I saw there made my eyes go wide in surprise. Every single item of footwear had its prices ending in odd numbers “199,299,499...259.50...” and many more! I wondered if the chap sitting at the counter ever knew why he was selling things at this absurd numbers! Odd pricing[/b] was a way in olden days to distinguish goods of fine quality . Prices of goods made in Great Britain when converted to US Dollars gave these odd prices. People soon began associating odd pricing with fine quality. Some others believe that these odd pricings prevented cashiers from pocketing the money because they had to give customers change. However I left the store after getting a Re 1/- change from the cashier.
On reaching home I decided to spend some time browsing through my mails. A mail with the header “Special offers just for you at Spencer’s Hypermarket, Calicut” caught my eyes. On opening it I was surprised that Spencer’s knew my preferences by heart. A person without Microeconomics background would have been flattered at how such a huge business firm chose to know his preferences and respect them. The practice called Yield Management[/b] is used by firms to gather information on consumers’ preferences and the responsiveness of consumers to change in prices, and to use this information to rapidly adjust prices. This is a by product of Price discrimination[/b], by which firms charge higher prices to some customers and lower prices to others. Yield management would not have been possible without the widespread use of information technology.
Microeconomics principles aside, I quickly got ready and dashed off to Spencer’s to claim my goodies.
I hastily checked my wallet to ensure I had enough currency to fulfil any sudden wish that might crop us during the foray between the aisles. To be on the safer side, I stopped at the Punjab National Bank ATM and pushed the card inside. Approximately 10 years back, Keralalites wouldn’t have known PNB. The trusted bank of the state and the very first was The Nedungadi Bank, started by Shri. Appu Nedungadi, who incidentally was also the first novelist in the History of Malayalam literature. However Nedungadi Bank merged with PNB. This is a fine example of Horizontal merger[/b], which is a merger between firms in the same industry. Weren’t news making mergers like BPL telecommunications with Hutch and Hutch with Vodafone, Escotel cellular with Idea all examples of Horizontal mergers? Putting thoughts aside, I collected the crisp currency notes pushed out by the machine and walked out of the ATM counter.
Once inside the supermarket, I found myself recalling many a words I had come across in the pale green textbook of Microeconomics. The first item of my list was fresh bread. When I selected the newest of the bread on the shelf, it occurred to me that I must also purchase a bottle of jam to go with it. In short I recalled that Jam and Bread were Complements[/b] which are goods used together. On the very next shelf was a can of peanut butter which was a Substitute[/b] to jam. Substitutes as the name implies are things that can be used instead of each other.
Walking away from the food section, I made my way to the aisle that housed detergents as that was the next item on my list.
On a closer look at the shelf for detergents I noticed that Surf Excel was now coming with added features like fragrance which was earlier absent. This action by Unilever is called Brand Management[/b], which is the action taken by a firm to maintain differentiation of a product over time.
What section better than that of vegetables can make a vegetarian soul happy at a supermarket. With the cropping of Reliance Fresh and Spencer’s, the vocabulary of vegetables that a common man possessed has been increasing widely. Broccolis, zucchinis, etc had overshadowed the commonly used vegetables in Kerala. Tapioca called Kappa in the local language is an underground tuber whose demand rises when there is a government strike and very soon when the strikes are over and incomes resume people switch back to fancy carrots and beet roots. Hence I would put the poor Tapioca under the category of Inferior goods[/b] whose demand increases as income decreases and decreases when income increases.
After claiming all the discounts Spencer’s had set aside for their privileged customer, that is me, I was thinking of engaging myself in some window shopping when the new Mobile service provider, Tata Docomo’s huge hoarding caught my eye. Call anywhere in India at 1 paisa per second. I had listened to my microeconomics professor talk at length about this Dominant strategy[/b] by Tata. A dominant strategy is the best strategy chosen by a firm, no matter what strategies other firms use. About 10 feet away from this huge hoarding was another hoarding equally big that proclaimed “Call Calicut to Karnataka at 50ps per minute”. The service provider was Vodafone! It went on to say that STD calls throughout India can be now made at 50ps per minute with a booster pack. Clearly Vodafone had chosen a strategy for maximising its profits based on that chosen by Tata Docomo. This can be an example for Nash Equilibrium[/b] where each firm chooses the best strategy, given the strategies chosen by other firms.
That was seriously a lot of Microeconomics in a day, I made my way to the famous fruit market in my city to get a few fruits for my mom. There were some thoroughly inviting golden yellow mangoes on display. Many a time shoppers like me who are not frequenters to these markets fall a prey to buying mangoes based on their outward appearance. The hawkers would also convince people like us that they were the tastiest mangoes money could buy. Here is the case of Asymmetric Information[/b] where one party in an economic transaction has considerably less information than the other. The mango hawker had more information about the quality of mangoes than me. I might fall prey to an adverse selection of buying low quality mangoes, which is a classical example of Adverse selection[/b], which is the situation in which one party to a transaction takes advantage of knowing more than the other party to the transaction. I moved away from the mangoes recalling the two old proverbs I learnt as a kid. “Beauty is only skin deep” might certainly have been a proverb coined by an economist as opposed to “A thing of beauty is a joy forever” probably said by a philosopher.
On reaching home, I counted the concepts of economics that flashed through my mind in a fleeting succession. I was amazed that I had come across 16 concepts of Microeconomics in a span of 24 hours (Subtract from it the 8 hours I slept), hence once concept an hour!!! My mind was filled with renewed interest and respect for the subject. Microeconomics certainly reasserts the famous saying that “Little things do not mean a lot, they just mean, Everything”!!!