Economics in action...

I have always had the perception that economics is a very dry and boring subject (this was mainly based on my high school knowledge of the subject). It's very surprising that my views have completely changed in just a matter of 2 classes and few hours of reading of microeconomics !!(this is one of the 4 subjects of my Term1). Contrary to my initial perceptions, I find it very interesting and fun to read....one of the reasons is definitely Prof. Amit Bubna - a very cool and energetic guy who can make any person fall in love with this subject!

Economics does sound very abstract and "unrealistic". There is this joke about 3 people - a chemist, physicist and and economist. They are in an island where there is ample supply of canned food but no tools to open the cans. The chemists thinks about lighting fire and bursting open the cans, the physicisit advocates building catapult to smash the cans. The economist's idea? "Let us assume we have a can opener" :) So economics does have a lot of assumptions which may be unrealistic but I guess this is essential because of the high complexity of the subject.

Some new concepts which I have come across that have excited me -
How much does it really cost??
- No one is born with infinite wealth. People have to do some trade off's and are forced to make choices. You cannot have them all!! Anytime I have made such choices, I have never really thought about the true costs of these decisions. Consider me quitting my well paid job and spending a HUGE amount of money to do my MBA here at ISB. All I probably thought about is the return on investment after a year from now...but I guess there is more to analyze in these situations. Economists call this the "Opportunity Costs". So the true cost of making any such decisions is the value of what must be given up in order to acquire the item. Consider another case - there are 2 firms which offer interest rates of 10% and 12%. Where would you invest? Definitely the second one. What is the earnings/profit on making this choice? I would initially say 12% but according to economics it is 2%, coz u are giving up 10% in making this choice!! Hmmm......pretty interesting I must say

The importance of thinking Marginally..
I dont want to go in detail about explaining what are marginal profits, revenues blah blah... not trying to teach economics to my blog readers :) But one interesting application of this concept can be seen thru this puzzle -
A soccer promoter must allocate 40,000 seats in the stadium among the supporters of 2 teams X and Y. She can set diff prices for seating in the stands for these 2 teams. If she sells "x" seats to team X supporters she will receive (20-x/2000)$ for each while she can get 10$ per ticket from Y supporters, regardless of the number of tickets she sells to them. Her objective is to allocate the 40,000 seats that are available in whatever manner, so that she can earn the maximum money (revenues). How can the tickets be split?

Well..if some of u reading this post are jobless and wanting to do something, u can try and solve this puzzle and ask me for the solution :)

More posts on economic "fundaes" to follow .....!!