Economist: An Introdution

A section in Mankiw's book, "Principles of Economics", quoting some advice from the great economist John Maynard Keynes:

The study of economics does not seem to require any specialized gifts of an unusually high order. Is it not . . . a very easy subject compared with the higher branches of philosophy or pure science? An easy subject, at which very few excel! The paradox finds its explanation, perhaps, in that the master-economist must possess a rare combination of gifts. He must be mathematician, historian, statesman, philosopher—in some degree. He must understand symbols and speak in words. He must contemplate the particular in terms of the general, and touch abstract and concrete in the same flight of thought. He must study the present in the light of the past for the purposes of the future. No part of man’s nature or his institutions must lie entirely outside his regard. He must be purposeful and disinterested in a simultaneous mood; as aloof and incorruptible as an artist, yet sometimes as near the earth as a politician.

Growing Rupee and growing concerns

Currency Conundrum: Is the strong Rupee Good or Bad for India? This article discusses the ups and downs of the rupee appreciation but itseems to lack the other side of the story. The problem has to do more with depreciating dollar than it has to do with appreciating rupee. Dollar is falling against all major currencies while rupee rise is significant against dollar only and not pound or euro. The dollar side of the story

Coming to the I.T. chapter of this article, one good thing is that in recent years, the non-US clients have started paying in local currencies. A few years ago most european and asian clients would pay in US dollars, and if that situation were to exist today, then the dollar depreciation would have had far severe impact.

Caesar III and AOE II

Caesar-3 and Age of Empires-2, two of my favourite computer games. I like them more these days as I started learning economics. Both these games are very good econ simulations. Allocation of limited resources, marginal costs-benefits, trade-offs. Let me quote examples from each game.

AOE
Limited Resources: Gold, wood, stone, food (farm/fish/sheep).
Players must constantly assess priorities and allocate scarce resources between creating new units, upgrading existing units, and researching to upgrade to the next Age.

Marginal Costs-Benefits: Research
Cost of undertaking a research (Cost of mining research) and the benefit (faster mining)

Trade-offs: Building wonder
Once a wonder is built, the game is over in 100 years. While some players might use this technique for victory, I find this method least appealing. For me, the trade-off for this technique is that the game is over. For a player like me, who plays a single game for days together, using wonder technique is a trade-off.

Caesar
Limited Resources: Limited farm land

Marginal Costs-Benefits: Gardens and Plazas. (cost of building gardens vs improved desirability of the housing area)

Trade-offs: Distance of Markets from housing area
While a far off market reduces the availability of food and provisions for housing area, a very close by market has a detrimental effect.

MANKIW : TEN PRINCIPLES OF ECONOMICS

HOW PEOPLE MAKE DECISIONS
#1: People Face Tradeoffs
#2: The Cost of Something Is What You Give Up to Get It
#3: Rational People Think at the Margin
#4: People Respond to Incentives

HOW PEOPLE INTERACT
#5: Trade Can Make Everyone Better Off
#6: Markets Are Usually a Good Way to Organize Economic Activity
#7: Governments Can Sometimes Improve Market Outcomes

HOW THE ECONOMY AS AWHOLEWORKS
#8: A Country’s Standard of Living Depends on Its Ability to Produce Goods and Services
#9: Prices Rise When the Government Prints Too Much Money
#10: Society Faces a Short-Run Tradeoff between Inflation and Unemployment

Google vs Yahoo

A friend of mine has been a blogger for quite sometime now. His current blog is Epistles and he has managed to maintain several blogs simultaneously. When I try to compare his blog to mine, I tend to think of them as Google vs Yahoo, his being Yahoo. His posts are relatively longer and tend to keep the readers at his site for a longer time. Yahoo too, wants its visitors to hang around its sites for longer time. My blog, like Google, will keep the readers for a much shorter duration (that is if I happen to have any readers at all ;-) ), taking them to the links that I provide. Other than this and the fact that Yahoo is an older corporation than Google, I see not much to relate the two blogs to the search engines.

B.T.W, he got recruited at Yahoo recently. Congrats Sharath.

Potteronomics

An excellent chapter for my economics learning, Megan McArdle of The Economist explains why Harry Potter novels are very poor examples of economics.

But this actually presents a problem for authors. If magic is too powerful then the characters will be omnipotent gods, and there won't be a plot. Magic must have rules and limits in order to leave the author enough room to tell a story. In economic terms, there must be scarcity: magical power must be a finite resource.

Economics of Airline Ticket Costs

Few months ago I had watched a programme on CNBC titled, "Inside American Airlines : A week in Life". I was amazed to find out about the narrow margins in airline industry, not to mention the various cost cutting mechanism already in place and the tricks of frequent flier trade.
One interesting aspect is the economics behind the ticketing. And I thought distance and fuel costs were the main criteria.

Some more interesting reading here

Q: You also got access to American's Dallas command center.
A: It's so quiet. Guys on headsets. Total Mission Control. They're tracking the performance of every flight. They're on the phone with NORAD (North American Aerospace Defense Command). There was a Tokyo-New York flight where a passenger was beating his wife and then punched a flight attendant. Now it's standard procedure to just call NORAD and get an escort of fighter jets. You act first and ask questions later.

Drive thru ATMs and Low Cost Indian Car

Why do drive thru ATMs have braille keys? Answers found here and here from the Economic Naturalists Series by Prof. Robert H. Frank.
Mass production reduces cost, but I wonder why this principle can not be applied in manufacturing the Rs 1 lakh car by the TATAs. Instead the cost cutting principles seem to be these.

The car will come in two or three levels ⿿ the lowest level being priced closest to the 1 lakh mark ⿿ which the Tata calls the ⿿rudimentary⿿ model, the other word for something that moves and has four wheels and nothing else. The challenge Tata has is to make this appealing enough for the consumers.

Why Economics ? (Part 2)

Back to the old question, why learn economics?

• People who have known me since childhood might argue that since I am a banker's son, economics becomes a default choice. In that case, I should have opted to study economics in junior college itself but then I preferred science instead.
• People who have known me in recent years might argue that since I have been working for a leading American Bank for almost 4 years now, econ became an acquired taste. I would hate to disagree but the kind of work that I have been involved with this American Bank has got nothing to do with its core business. I have worked on technologies to keep track of their internal business and cost savings.
• I figured that the main reason why economics attracts me now is since I have started earning and spending in multiple currencies, living in best of both worlds - from rapidly developing to highly developed, between an economic giant of yesteryears to an economic giant of the future.

The Lost Theater Ticket

I wish to conduct a poll. Someday, when my blog would have sufficient traffic, I would return to the below scenario and try to gather statistics. I came across this example in a presentation at Principles of Economics, student center.

Consider the below scenario

1) A Theater ticket cost $10
2) You have $20 and you wish to see the play

A) Would you buy the ticket after losing a $10 bill?
B) Would you buy a second ticket after losing the first?

People seem to make inconsistent choices !!!

Microeconomics of "Deal or No Deal"

Interesting article on Risk vs Utility

“Deal or No Deal” is a prime example of microeconomic theory at work. If the show lasts long enough (and I hope that it does), it could be a useful tool for more expansive studies of the relationship between risk and utility.

Business Vs Philanthropy

Which is better for the society? Business or Philanthropy? Prof. Robert Barro takes the example of Bill Gates in his study here.

Mr. Gates has pointed out that it's difficult to give away such a large sum of money in a productive way. This isn't exactly true. He could cut a $300 check to everyone in the U.S., or donate the money to the U.S. Treasury with the aim of reducing the national debt. The last method is easier but has different effects on income distribution.

But Mr. Gates's plan is, instead, to use the Bill and Melinda Gates Foundation to reduce world poverty, with an emphasis on advances in health. This is a noble goal. But it will likely just supplement the much larger existing programs of aid and debt relief that have been carried out
for many years by international organizations and governments. These programs have, at best, a checkered record. Although Mr. Gates is probably smarter and more motivated than the typical World Bank bureaucrat, he likely won't do much better.

Economics of Medicine (mal)Practice

Dilbert

Globalization

iPod's manufacturing process is an excellent example of Globalization. A research by Greg Linden, Kenneth L. Kraemer and Jason Dedrick of UC offers a fascinating illustration of the complexity of the global economy, and how difficult it is to understand that complexity by using only conventional trade statistics. Also, the parent article from NY Times.

On a lighter note, below is another example of globalization - a mobile phone text message that I received recently.


Princess Diana's Death : An English princess with an Egyptian boyfriend crashes in a French tunnel, driving in a German car running on a Dutch engine, driven by a Belgian who was drunk on Scottish whisky, followed closely by Italian paparazzi, on Japanese motorcycles. She was treated by an American doctor using Brazilian medicine. This message was created by an Indian on a Chinese phone.

Econ Fundas

Few basic fundas in mircoecon

1) Trade offs - What are the benefits or losses due to an economic decision

Few scenarios - If price of a certain product is reduced do we have more buyers or fewer sellers?If minimum wage is raised, does it result in those who got less than minimum wage earlier are now getting the minimum wage or does it result in less employment opportunity?

2) Price - Price is a rationing device. Since resources are limited, price helps us in decisions wrt to allocating the limited resources.

3) Markets

4) Opportunity Cost

Micro Vs Macro

There are two branches of economics

MicroEconomics - deals with individual economic units such as consumers, investors, business firms etc, and explains why and how these units make economic decisions

At some point of time in future, I would be able to explain, in microeconomic terms, as to why am I creating this blog instead of having slept. Its 2:48 am local time :-)

MacroEconomics - deals with aggregated economic units such as inflation, interest rates, national output etc.

Why Economics?

Why Learn Economics? Why not learn to speak French, or learn to play piano, or study for a technical certification? Well, I am planning to do all the above but I choose to learn Economics 1st because I am hoping that economics will provide me with a tool to provide an educated justification for having defered to learn the rest of the items mentioned above :-)

Opportunity Cost, as always, plays an important role here. So what is Opportunity Cost? We will learn soon. Happy learning to me

How to Learn Economics?

I have been asking the below questions to myself for the past couple of months.

- How to learn Economics ?

- Which is the easiest way to learn Economics ?



I figured out that the answer itself lies in the economics of learning ecomomics i.e. allocation of limited resources. Limited resources being Time, Books, Online material etc. Opportunity Cost also plays an important role.

I basically set out, determined to learn economics the way it would be taught in a graduate school of business, and my findings were about to astonish me the most. Apart from the curriculum itself, some colleges have published the lecture notes, recitations, assignments (MIT OpenCourseWare) while some others have webcast of the lecture itself (UC Berkeley Webcast).

So the remainder of the blogs are going to be my learnings of economics with the aid of the above resources, and other resources that I might come across. Like I mentioned earlier, opportunity cost is going to play a crucial role. We will find out how.