Economics of Learning Economics

High Cost of Poverty?

2009-05-23T19:11:00.000-07:00

An interesting article in the Washington Post, titled "The high cost of poverty: Why the poor pay more"
The author tries to highlight the fact that the poor are unable to reap the "whole sale" benefits that the supermarkets and retail giants offer. A reverse trend is seen however in developing countries . For Example: An upcoming release of Microsoft's OS , Windows 7, has an edition specifically targeted for emerging markets. Microsoft and other companies have been doing this for quite some time now where they strip off features from the main product and sell a bare minimum version at a relatively lower price.
This process is evident in other industries too. Indians have been sachet lovers. From shampoos to jams and ketchup, Indians will prefer spending "a little" to get "a little". Ray Ozzie, Chief Software Architect at Microsoft, is said to be inspired by this piece meal concept as he introduced the various software editions targeted at Indians.

India vs China

2009-05-10T18:29:00.001-07:00

It is Democracy vs Communism. It is time to get back to the text books and refresh the basics and also evaluate the same wrt to India and China. It is time for the debate, "The future belongs to India, not China".

My guess is that either the debate is going to be inconclusive or there is going to be a narrow victory margin. I am not keen on the results but I am looking forward to the various perspectives and view points that the participants are going to bring to this debate. What intrigues me the most is that both these nations, with their billion plus population, have been able to "efficiently" run their economies.

Tata Does it again

2009-05-06T12:12:00.000-07:00

After a small car, it's a small home from the Tata.

It is quite easy to dismiss this initiative as yet another capitalistic corporate venture and overlook the macro-economic growth and long term sustainability. The brilliance of the plan is clearly reflected in selection of the location for this venture.

What next can we expect the Tatas? In the lines of Roti kapda aur Makan, the latter has been already initiated.

Now imagine this : The small home owners (from Boisar) to work (to Bombay) in their small cars (Nano). [Thats how much my boss used to travel to work in NYC from his home in southern Jersey.] Lets hope that the TATAs build a high speed highway connecting the town to the city.

When the popcorn grew bigger that ticket

2009-04-21T17:39:00.000-07:00

I came across an interesting article about how the cost of a movie ticket and a bag of popcorn have increased over the past 80 years. The author states some Hollywood economics here (Hollywood takes a majority of ticket proceeds during the first of the film's release) and also adds that the facilities such as stadium seats and surround sound systems are the causes for the rise of popcorn prices by over 666%.

Is hiking popcorn prices the only way to meet the expenses? Why not increase the price of the ticket itself. In India for example, the multiplexes can charge the movie-goer an additional "air conditioning surcharge". And again, we would not want to increase the price of the ticket alone that reduces the number of movie-goers and increases the revenues of blockbusters and netflixers.

Can we have a model such that the price rise is balanced between the popcorn and the ticket?

PS: The only solution that I can think of at this moment is for Hollywood to produce better movies that run for several weeks. Mr. Boyle, how about another flick sometime soon.

Tracking my readers

2009-04-14T12:19:00.000-07:00

I have installed an application to track the location of my beloved readers, the time they last accessed the blog and the posting that was accessed. I have done this out of personal interest and I wish to know which posting is most visited. If you wish to erase your tracking, please do so by accessing http://live.feedjit.com/live/b44c12ca81130217/ and click on the "Remove your IP" button.

And that is why we are in trouble....

2009-03-07T16:07:00.000-08:00

Linda is the proprietor of a bar in Cork . In order to increase sales, she decides to allow her loyal customers –most of whom are unemployed alcoholics - to drink now but pay later. She keeps track of the drinks consumed on a ledger (thereby granting the customers loans). Word gets
around and as a result increasing numbers of customers flood into Linda's bar. Taking advantage of her customers' freedom from immediate payment constraints, Linda increases her prices for wine and beer, the most-consumed beverages. Her sales volume increases massively.

A young and dynamic customer service consultant at the local bank recognizes these customer debts as valuable future assets and increases Linda's borrowing limit. He sees no reason for undue concern since he has the debts of the alcoholics as collateral. At the bank's corporate headquarters, expert bankers transform these customer assets into DRINKBONDS, ALKBONDS and PUKEBONDS.

These securities are then traded on markets worldwide. No one really understands what these abbreviations mean and how the securities are guaranteed. Nevertheless, as their prices continuously climb, the securities become top-selling items. One day, although the prices are still
climbing, a risk manager (subsequently of course fired due to his negativity) of the bank decides that slowly the time has come to demand payment of the debts incurred by the drinkers at Linda's bar. However they cannot pay back the debts.

Linda cannot fulfil her loan obligations and claims bankruptcy. DRINKBOND and ALKBOND drop in price by 95%. PUKEBOND performs better, stabilizing in price after dropping by 80%. The suppliers of Linda's bar, having granted her generous payment due dates and having invested in the securities are faced with a new situation. Her wine supplier claims bankruptcy, her beer supplier is taken over by a competitor. The bank is saved by the Government
following dramatic round-the-clock consultations by leaders from the governing political parties (and vested interests). The funds required for this purpose are obtained by a tax levied on the non-drinkers.

Finally an explanation, in the language that we understand...

Spend or Save

2009-02-19T17:57:00.000-08:00

In the current economic condition, is it wise to spend or save? While some advocate "save" in times of trouble, others suggest "spend" to get out of the same troubled times.

Here is an interesting case I came across recently.

A company asks its employees to stop using the big courier services and use the cheaper govt run postal service for all its postal needs. This way it hopes to cut cost.

This case leaves me with the following possibilities and questions.

If the size of the company is small (in terms of its postal needs), the courier folks haven't lost much, but what if most small companies adopt this cost cutting measure.
If the size of the company is big (in terms of its postal needs), the courier folks are looking at some serious loss of business, forcing them to a few cost cutting measures of their own.
Is cheap better only during economic crisis? Will the company return to courier services once the situation improves?

Senate passes the stimulus bill !!

2009-02-10T09:55:00.000-08:00

Updating my blog within minutes of the Stimulus bill being passed in the senate!!

"Not a moment to Spare"

2009-01-28T15:42:00.000-08:00

The stimulus package passed in house. Senate next. In Obama's words, "Not a moment to Spare"

Economic Stimulus (Part 1)

2009-01-19T17:19:00.000-08:00

We all know what happens as we move on from autumn to winter season. The deciduous trees shed leaves primarily because the high costs involved in their maintenance would outweigh the benefits from photosynthesis during the winter period of low light availability and cold temperatures. And in spring the we see growth, renewal and new life. But can we stimulate spring during winter and expect similar results in terms of growth? I am not an expert in that field but a similar attempt is being made (and has been made in the past too), to stimulate growth back into the economies world wide.

The argument is made that people are suffering from a decline in income, and thus the government should give them money so they can buy more and put others back to work. Sounds good - but where does the government get the money? It must either tax someone else now or borrow more money, which diverts productive saving to current consumption. Either way, it is less than a zero-sum game.

Blogging

2009-01-12T18:53:00.000-08:00

The last post was dated Jan 11th. The date on this blog is Jan 12th. Only difference is that the two posts are about a year apart. What kept me away from blogging this long? I am sure there is an economic reason behind it, Or to put it in other words, the reason can be explained in terms of economics. Watch out for details.

Free Market and TATA NANO

2008-01-11T08:57:00.000-08:00

Its finally here. The (mental ?) barrier is broken. A car at an astonishingly low price. And we are not talking about a cart with 4 wheels and an engine, Nano is a car in most conventional sense. But it is facing some serious criticism.

Nano will create congestion on Indian roads
Pollution levels are going to hit all time high
Low safety (International) standards

Some blunt assumptions have been made to arrive at the above points. First of all, the critiques believe that Nano is going to be so popular due to its low price that every Tanu, Dinesh and Hari will buy this car. I would say - let the market decide. I am sure the competition is also gearing up to produce low price cars, and India being a free market (sort of), car manufacturers are free to produce cars which they think the consumers are willing to buy. At the same time, the consumers are free to buy whatever car they can afford. Indian economy is booming, the people are getting richer. People will upgrade their standards of living. A family with small car will upgrade to a mid size car. What do the critiques have to say about that?

Second point is that road congestion is not a problem of a car manufacturer. Its the responsibility of the govt to provide better infrastructure. In the absence of mass transit systems, people are forced to arrange for their commute. Also Ratan Tata, the Chairman of TATA group has made a press statement that the TATA's do not have the resources to create the kind of congestion the critiques are taking about. The economic principles are evident here too. The raw materials - steel, plastic, rubber etc - required for a car are limited in terms of the availability. The alternate uses of these materials will determine the net availability of these to the car manufactures.

Lets say that the increased number of Nanos on roads does create a traffic problem. In such a case following outcomes are possible. The govt would be further pressurized to a) create more roads b) build mass transit systems c) develop suburbs. But these things do not happen overnight. What could gradually happen is that the demand for cars such as Nonos would fall. People could follow the western methods like car-pooling.

To conclude, whatever the situation might turn out to be, as long as the govt "does not" intervene to control the car manufacturing, the invisible hand of the free market will lead us to a solution.

Beer Story

2007-12-19T12:10:00.000-08:00

The "Demand and Supply" Story of Beer and its ingredient - Barley.

A disaster has occurred in Germany: The staple drink—beer—is rising in price. The reason is that there is a worldwide shortage of barley, a major ingredient in the brew. This has pushed up the price of barley, and shifted the supply curve of beer to the left. I would think that the shortage is temporary—with higher prices of barley, more farmers will plant the crop. That should alleviate the shortage, bring the price of this input back down, and after a year or two lead beer prices back more or less to their current levels. Not much consolation for those wishing to quaff the brew of the holidays, but their pain is probably going to be short-lived (and, if they drink enough, they won’t remember it anyway!).

Link to this article on Freakonomics, and the many more from the Economics Thought of the day.

Now consider these scenarios
What if due to higher prices, the consumer shifts to cheaper drinks - perhaps carbonated drinks, or decides to reduce the consumption of beer. Thus reducing the demand for beer.

1) The farmers on the other hand continue to grow similar quantity of barley shifting the supply curve and bringing down the price of beer

2) Due to reduced demand for Beer, the cost of barley reduces. Thus alternate uses of barley (bread?) become available for a lower price

Left Turn Economics

2007-12-12T12:52:00.000-08:00

UPS saved three million gallons of gas and reduced 28.5 million miles off its delivery routes. How? By reducing the number of left-hand turns. Read on

Some questions now.

1) How can we implement such a thing in India? Does the complementary rule - Reduce right-hand turns - help?
2) Can we derive an optimal number for the small vans (shorter trips) big vans (longer trips, complex turn schedules? ) combination.
3) Incorporate drop off schedule based on local traffic patterns?

Econ e-books and e-mags

2007-12-10T11:05:00.000-08:00

e-books
e-magazines

Disclaimer: The above URLs point to a search engine of e-books on the Internet. Please contact the content providers to delete copyright contents if any.

Cheap Economizing Officer (CEO)

2007-12-03T17:41:00.000-08:00

An interesting article about an american family of 7 who were able to live on an annual income of $35000.

What can the corporate world learn from this family -

1) Plan. A very crucial aspect of any business. Even though the corporates come up with beautiful literary pieces in the form of mission and vision statements, where they fail is to form a plan to achieve the same.

2) Organize. A well defined organization hierarchy is very important. It should define the reporting structure and help in establishing accountability.

3) Shop wisely. Not every outsourcing deal can result in cost savings. Shop wisely for vendors.

4) Communicate Effectively.

5) Team work.

Passing Note. Citi group is also looking out for a CEO. They could definitely use one cheap economizing officer.

Lose Leader

2007-11-28T07:31:00.000-08:00

After having witnessed four Black Fridays and Cyber Mondays, I am just not convinced about the "Real" savings that a consumer makes. All this seems to be a marketing gimmick. The stores try to establish credibility thru the early bird sale and then just walk their way back smiling to the cash registers for the rest of the day. See this article for a detailed example of how stores try to establish such credibility.

Bangalore Economics

2007-11-16T11:46:00.000-08:00

Mint explains the out sourcing activity w.r.t Bangalore in economics terminology.

Internal transaction costs went up while market transaction costs fell after the mid-1990s. That was the economic cue for outsourcing to take off, as companies found it cheaper to get certain things done outside rather than from within the boundaries of the firm

In his theory, The theory of the firm, British economist - Ronald Coase explains why the economy is populated by a number of business firms, instead of consisting of exclusively of independent people who contract with one another. According to him, Transaction Cost determines whether firms seek hired help or contract out for some particular task.

In an attempt to expend this theory to how departments are formed within a firm, I see why we have separate departments for Sales, Operations, Business Units, Technology units etc. For any service provided by one department to the other, there is a transaction cost incurred. Ex - the (tech) support dept charges the technology dept for all its services, technology charges the business units for its services etc.

Further, individual departments can get contracted out and this is where Bangalore has a major share.

How to increase the value of falling U$D

2007-11-08T07:49:00.000-08:00

What is the value of four $1 currency notes? Did you say the answer is $4? You maybe right, but it can be worth more than that. US Bureau of Engraving and Printing sells uncut currency notes of various denominations. For example, a sheet of four $1 bills can cost $15. (as of 11/08/2007). The Bureau is trying to market its product as a gift idea for the holiday season.

Even shredded currency is sold at a highly economical price of $165 per ounce.

Bear and Bull

2007-10-29T12:25:00.000-07:00

The Indian stock Index, Sensex, has been very bullish lately. Reasons - Contributions from RIL, ICICI Bank, ONGC, L&T and Bharti Airtel.

My blog entries have taken a bearish dip. Reason - Opportunity Cost.

Will return back soon in November.

Ig Nobel Winners in Economics

2007-10-06T02:59:00.000-07:00

My Compilation of Ig Nobel Prize winners in Economics

1991 - Michael Milken, titan of Wall Street and father of the junk bond, to whom the world is indebted.

1992 - The investors of Lloyd's of London, heirs to 300 years of dull prudent management, for their bold attempt to insure disaster by refusing to pay for their company's losses.

1993 - Ravi Batra of Southern Methodist University, shrewd economist and best-selling author of The Great Depression of 1990 and Surviving the Great Depression of 1990, for selling enough copies of his books to single-handedly prevent worldwide economic collapse.

1994 - Juan Pablo Davila of Chile, tireless trader of financial futures and former employee of the state-owned Codelco Company, for instructing his computer to "buy" when he meant "sell." He subsequently attempted to recoup his losses by making increasingly unprofitable trades that ultimately lost 0.5 percent of Chile's gross national product. Davila's relentless achievement inspired his countrymen to coin a new verb, "davilar", meaning "to botch things up royally."

1995 - Nick Leeson and his superiors at Barings Bank and to Robert Citron of Orange County, California for using the calculus of derivatives to demonstrate that every financial institution has its limits

1996 - Dr. Robert J. Genco of the University at Buffalo for his discovery that "financial strain is a risk indicator for destructive periodontal disease."

1997 - Akihiro Yokoi of Wiz Company in Chiba, Japan, and Aki Maita of Bandai Company in Tokyo, for diverting millions of person-hours of work into the husbandry of virtual pets.

1998 - Richard Seed of Chicago for his efforts to stoke up the world economy by cloning himself and other human beings.

1999 - None

2000 - The Reverend Sun Myung Moon, for bringing efficiency and steady growth to the mass marriage industry, with, according to his reports, a 36-couple wedding in 1960, a 430-couple wedding in 1968, an 1800-couple wedding in 1975, a 6000-couple wedding in 1982, a 30,000-couple wedding in 1992, a 360,000-couple wedding in 1995, and a 36,000,000-couple wedding in 1997.

2001 - Joel Slemrod, of the University of Michigan Business School, and Wojciech Kopczuk, of the University of British Columbia, for their conclusion that people find a way to postpone their deaths if that would qualify them for a lower rate on the inheritance tax.

2002 - The executives, corporate directors, and auditors of Enron, Lernaut & Hauspie (Belgium), Adelphia, Bank of Commerce and Credit International (Pakistan), Cendant, CMS Energy, Duke Energy, Dynegy, Gazprom (Russia), Global Crossing, HIH Insurance (Australia), Informix, Kmart, Maxwell Communications (UK), McKessonHBOC, Merrill Lynch, Merck, Peregrine Systems, Qwest Communications, Reliant Resources, Rent-Way, Rite Aid, Sunbeam, Tyco, Waste Management, WorldCom, Xerox, and Arthur Andersen, for adapting the mathematical concept of imaginary numbers for use in the business world. (All companies were forced to restate their financial reports due to false or incorrect accounting and are U.S.-based unless otherwise noted.)

2003 - Karl Schwärzler and the nation of Liechtenstein, for making it possible to rent the entire country for corporate conventions, weddings, bar mitzvahs, and other gatherings.

2004 - The Vatican, for outsourcing prayers to India.

2005 - Gauri Nanda of the Massachusetts Institute of Technology, for inventing an alarm clock that runs away and hides, repeatedly, thus ensuring that people DO get out of bed, and thus theoretically adding many productive hours to the workday.

2006 - None

2007 - Kuo Cheng Hsieh, for patenting a device to catch bank robbers by ensnaring them in a net

Supreeth Quarterly

2007-10-01T04:37:00.000-07:00

It has been 92 days and 38 postings since I started this blog. I also happen to have completed one quarter. How have I fared so far? What has been the learning experience? Has any reader of my blog been benefited by my postings? Where do I go from here? Do I see myself celebrating 5 years completion, 2 years completion or at least one more quarter of blogging?

Individually, it has been a great learning experience. I have been talking a lot in "Economic Terminology" and this has been irritating few of my friends. I do not know how long I will be able to continue to blog but my Economic learning will definitely continue.

One of the major learnings for me this quarter is about how narrow is the differentiating line which separates MicroEconomics from MacroEconomics. One can not talk about either of these in total isolation. I quote this because when I started blogging, I intended to study only microeconomics.

Happy Blogging to me :-)

10 businesses facing extinction in 10 years

2007-09-28T09:18:00.000-07:00

MSNBC lists down 10 businesses that might go extinct during the next decade. Lets examine each of them

1) Record stores

Online music stores are slaughtering record stores. Could this phenomenon be carried over to other kinds of stores as well? There is hardly anything that can not be purchased online.

2) Camera film manufacturing

Photoprinting is also reducing, but might not go extinct. I recently bought a photoprinter myself.

3) Crop dusters

Sorry what?

4) Gay Bars

Yeah right !!

5) Newspapers

Even though I like my epaper, the touch, the smell, the feel of newspaper and its ink is irreplaceable.

6) Pay phones

Imagine this for the next decade- WiFi everywhere, WiFi enabled PDA. Now connect to Google Talk over the WiFi Internet and speak to any one across the globe. All that you have to imagine is that every person on this earth has a Google account and is always logged on :-)

7) Used bookstore

What did I tell you in my point about Record stores

8) Piggy Banks

We won't have Piggy Banks anymore. In fact, we would be seeing fewer real banks (branches) too.

9) Telemarketing

Go back to point 6. As long as Google is being used, marketing is covered

10) Coin operated arcades

Sorry I am lost.

Pizza Wars

2007-09-26T08:32:00.000-07:00

One of the trade-offs common to economic decisions is between Efficiency and Equity. While Efficiency refers to the size of the economic pizza, Equity refers to the slice of the economic pizza.

On a different note, Pizza companies seem to be working on increasing both efficiency and equity in the Indian market. Link here

Updated Knowledge Links

2007-09-19T11:43:00.000-07:00

Found some online material for learning economics. Most of them are webcasts of college courses. Please see the updated Knowledge Links ====>