Understand economics from scratch

Chapter 10 Is People’s Consumption Always Rational——You Need to Know a Little About Consumer Economics (2)
Usually, for consumers, if they want to meet the same need, more than one kind of commodity can meet their needs. A change in the price of a certain commodity will not only affect the demand for this kind of commodity, but also affect other products related to it. Goods demand and price.On the contrary, a change in the demand for a certain commodity will not only affect its own price, but also affect the prices and demand of other commodities related to it.That is to say, there is a cross relationship between commodities. According to this relationship, consumers can make reasonable consumption by using different combinations of related commodities, so as to achieve the maximum utility.The different natures of commodities determine that they can be substitutable, complementary and irrelevant to each other.Substitution means that two commodities are similar in utility and can be substituted for each other. Consumers can meet the same needs through their combination, and can maintain the commodity by increasing the consumption of one commodity and reducing the consumption of the other commodity. The utility of the combination remains unchanged.For example, soap and washing powder, beef and pork, etc., are substitutes for each other.Complementarity means that two commodities complement each other in terms of utility, and they must be used in combination to meet the needs of consumers. This demand is also called joint demand.For example, automobiles and gasoline, cameras and film, etc., the relationship between the two is complementary, and they must be used together to be effective.

In economics, substitutes are two commodities that have the same or similar functions and can satisfy the same needs of consumers.Here, we should pay attention to the same needs of consumers can be met.For example, because of the rising oil price in the first half of 2008, some cities replaced ordinary gasoline with lower-priced ethanol gasoline, and developed new energy vehicles, replacing gasoline-burning vehicles with electric vehicles.Another example is that cars and airplanes are substitutes when going to a certain place. For example, the fare of a car from A to B is 200 yuan. If the air ticket is reduced to 190 yuan, people who originally planned to take a car are likely to take an airplane instead. .These examples all show that among substitutes, if the price of a commodity rises, its demand will decrease, and the demand for a substitute whose price remains the same or whose price has increased will increase.Conversely, when the price of a commodity falls, the quantity demanded will increase, while the quantity demanded of a substitute whose price remains the same or decreases will decrease.

The substitution effect is very common in life.Most of our daily necessities are interchangeable, and we can arrange our lives based on the principle of economical benefits according to the changes in their prices.If radishes are more expensive, eat more cabbage, and if rice is more expensive, eat more noodles.If we can't afford real famous brands, we can use imitation famous brands instead, which can also bring great psychological satisfaction to us.If the price of the CD goes up, we can replace the CD with tapes, music programs on the radio, or even live concerts.Sometimes the substitution effect has nothing to do with the price. For example, after the outbreak of bird flu, few people buy eggs and chicken, and they use pork instead.Generally speaking, the more difficult an item is to replace, the more expensive it will be.The higher the technical content of the product, the higher the price, because high-tech products can only be completed with high technology, just like color TV can only be produced by a color factory, and anyone can make steamed buns, so the price is extremely low.Artwork is expensive because art is a highly personal item for which there are few substitutes.Da Vinci's famous painting "Mona Lisa" has only one piece, so it is extremely precious and priceless.

Substitutes are commodities that meet the same needs of consumers and do not have to be used at the same time, while complementary goods are two commodities that both meet the needs of consumers and must be used at the same time.An increase in car sales causes an increase in gasoline sales, and an increase in the price of oil causes a decrease in car sales because they are complements.That is, an increase in the price of a commodity not only reduces its demand, but also reduces the demand for its complement; conversely, a decrease in the price of a commodity increases its demand, which in turn increases the demand for its complement quantity.

The substitution effect is ubiquitous in people's daily life, and plays a huge role in the supply and demand of goods and the competition of businesses all the time.Therefore, we must fully understand and use this effect in our social life.

Economics teaches you to make rational choices
When it comes to consumption, I am most afraid of the word "serious".If you are not serious, the money will be spent in a muddle, regardless of gains and losses, so naturally spend it happily.For example, it doesn't matter whether you buy a hat or a pair of gloves with 10 yuan, as long as you want it.It is said that when an Indian has only enough money in his pocket to eat a meal or watch a movie, he will not hesitate to decide to go to the movie hungry.Who's to say his decision was wrong?
But if you take it seriously, the knowledge in this consumption is another matter.It can be described as "a lot of doors".For example, when you decide to take your friends out tonight, you have two options: either watch a movie or go out to dinner.Movie tickets are 5 yuan each, and the cost of dinner is about 50 yuan. Of course, you may say that if you have money, you can do whatever you want.But from an economic point of view, when you choose, you have compared the benefits you may get with the costs you pay.Watching a movie, you only need to spend 10 yuan as your cost, and the income you get will be the enjoyment brought by watching the movie; while eating dinner will cost 50 yuan, and the cost of dinner will be 5 times the cost of watching the movie, so you You must expect that the benefits of eating dinner will more than double the cost of watching a movie before you choose to eat dinner rationally.

In our daily life, we compare costs and benefits all the time. Whether we are studying or working, it all depends on the actors' self-assessment from the perspective of costs and benefits.It is necessary to be good at choosing and to learn to give up. This is called opportunity cost in economics.In economics, what is given up when making a choice or decision is called the opportunity cost of this decision.In the book "Principles of Economics" co-authored by K. E. Case and R. C. Fell, opportunity cost is described as follows: "The reason for opportunity cost is that resources are scarce (limited) .For example, the problem of time. There are only 24 hours in a day. We must live within this constraint. The opportunity cost of going to the movies is the value of other things you can do if you spend the same amount of money and time; part of the cost of a college education is that you do What you would get by working a full-time job. If your neighbor has to mow his lawn today, he won’t have time to take the kids to the zoo, and that’s the opportunity cost of mowing the lawn. Bill and Colleen (the imaginary plane crash in the book) The two pilots who survived in the [-], who landed on a deserted island) will occasionally decide to take a break, lie on the beach and enjoy the sun, and this benefit is free in the sense that they do not have to pay currency for it. However In fact, it has an opportunity cost, and lying in the sun means spending time that could otherwise be used for other things. It is sometimes beneficial to think about opportunity cost in making everyday decisions."

Assuming that something is an either/or choice, and that the two options have almost the same appeal, the choice is undoubtedly difficult.According to the above principles, analyze the two selection objects, if one of them has 51% reasons for selection, you should choose it without hesitation, this is the so-called 51% principle.Choosing one means giving up the other, which means losing 49%.You have to gain and lose, you can’t have both, at this time you have to admit the reality, 49% has become zero, you don’t have to worry about it anymore, but you should go all out to plan how to get 51% as soon as possible converted to 100%.When we make any choice, we must spend opportunity costs. Using the 51% principle may enable you to obtain a value that is at least not lower than the value of the opportunity cost.

In real life, the things people encounter are often very complicated or "fuzzy", and it is usually impossible to express them with accurate figures, so the 51% mentioned here is not really to calculate an accurate number. Numbers, but just provide a way to think about the problem.When you want to make a decision, you can make a choice without hesitation by judging which option is "better".Through the exercise of this way of thinking, people will not be indecisive and procrastinated when they encounter problems, but gradually develop a good thinking quality of conciseness, clarity, and good decision-making.

Coupons, "beneficiaries" are merchants

On Valentine's Day, Mr. Zhang went to a flower shop to buy roses.The usual rose is 2 yuan a rose, and the Valentine's Day price is 20 yuan a rose.Mr. Zhang thought: Although flowers are expensive, you have to buy them.However, I still feel really distressed after buying it. After all, if I buy too little, I will lose face, and if I buy too much, it will cost me money.

While hesitating, the shopkeeper came over and said, "Sir, do you want flowers?"

Mr. Zhang: "Yes. But, can roses be cheaper?"

The shopkeeper smiled and said, "Send it to your girlfriend? Haha, how can you be afraid of spending money chasing a girl? If you get your happiness because of this big bouquet of flowers, it's a bargain!"

Zhang hesitated...

The shopkeeper continued: "Why don't you do this, you can apply for a membership card with me, and I'll give you a [-]% discount."

Mr. Zhang: "Ah? Is this necessary?"

The shopkeeper was surprised and said, "Why not? Who doesn't send flowers for weddings and funerals? Don't you have to wait until you meet them before you know how to buy them?"

Mr. Zhang was right after thinking about it, so he applied for a card and bought a bunch of flowers.

The emergence of membership cards is like coupons often issued by shopping malls.For example, on the McDonald's website, customers only need to print a certain coupon, and then they can go to McDonald's to enjoy a certain set meal at a discounted price with the coupon, and they can even get free coupons at the roadside.

On the face of it, they are businessmen passing on profits to consumers.Is it true?
The easiest explanation for merchants to issue coupons is to attract more customers and increase sales.But if this is the purpose, it is better to cut the price directly.The correct explanation is: merchants use this to conduct "price discrimination".

Generally speaking, price discrimination means that when a company sells a commodity, it charges different prices to different consumers, or charges different prices according to the quantity purchased by consumers.The profit drive of earning more profits is the root cause of "price discrimination" by merchants.

From the perspective of market demand, the higher the price, the smaller the demand; the lower the price, the greater the demand.From the perspective of merchant pricing, if the price is set too low, although a large number of products can be sold, the total profit will be lower because the profit earned by each product is small; High, although the profit earned by each product is large, but the total number of products that can be sold is very small, and the total profit is still not high.

In fact, the determining factor of merchants' pricing is "total profit", not the level of "price".Merchants must target specific customers, and find an appropriate price level according to the needs of customers and their sensitivity to product prices, so as to maximize the total profit.Going back to McDonald's coupons, how does McDonald's "benefit" through coupons?
Obtaining McDonald's coupons requires a certain cost.Searching for coupons on the Internet and reading McDonald's promotional newspapers will cost you search costs; printing coupons or asking for coupons will cost you time.It is usually those who have a cheaper time cost and are more willing to use coupons.And the time cost is relatively cheap, and it is often some people with low income.

As a result, McDonald's successfully divided customers into two categories: rich and poor.For the rich - people who don't hold coupons, McDonald's supplies them with more expensive goods; and for the poor - people who hold coupons, McDonald's gives them discounts.Through this classification, McDonald's total profit reaches the sweet spot.

Information asymmetry, buying is not as good as selling

Buyer: How much is this dress for you?

Seller: 550 yuan.

Buyer: It’s too expensive. I’ll give you 250 yuan at most.

Seller: 250 yuan doesn't sound good, so let me sell it to you at the purchase price, 450 yuan!
Buyer: It's still too expensive, how about 300 yuan?
Seller: 300 yuan is too cheap. If we all give in, the deal will be made at 400 yuan.

Buyer: Will you give me 350 yuan?Leave if you don't give me.

Seller: Wait a minute, wait a minute, 350 yuan is 350 yuan.This time I definitely sold it to you at a loss.

In real life, we often encounter such a situation.Is it because we picked up the bargain, or the merchant made a profit? I am afraid that only the merchant himself knows.The reason for this situation is mainly due to the asymmetry of information possessed by buyers and sellers.

In the process of purchasing goods, people's individual information cognition of goods will produce information asymmetry.Some commodities are different inside and outside, and it is difficult to check when buying, such as bottled alcohol, boxed cigarettes, audio and video tapes, etc.People either can't see the inside of the product package (such as cigarettes, eggs, etc.), or can see it, but can't distinguish the quality of the product with their eyes (such as audio and video tapes).Obviously, for this type of product, buyers and sellers know different information.Sellers are more aware of the actual quality of products than buyers.

Merchants and consumers are both rational economic persons as buyers and sellers. The ultimate goal is to maximize their own interests. Due to the asymmetry of information between the two parties, consumers are always at a disadvantage in real life.

Information economics believes that information asymmetry has caused an imbalance in the interests of both parties in market transactions, affecting social fairness, the principle of justice, and the efficiency of market allocation of resources.Among the information that merchants and consumers know about commodities, merchants always know more than consumers. What consumers know is only the appearance characteristics of commodities such as style, color, and size. It is impossible to know the actual situation, but can only be understood through the propaganda of the merchants.

As the saying goes, interlacing is like a mountain. This mountain is actually an information asymmetry, and to obtain this information is to pay a cost (price).The advantage of merchants lies in the possession of commodity information and marketing strategies, and the amount of information possession should be as much as possible greater than that of consumers. Only in this way can they ensure profits in each transaction.The so-called "buyers are not as good as sellers" is exactly the truth.Knowing yourself and the enemy can win every battle. In the game of buying and selling, the disadvantage of consumers possessing information is doomed to failure in the contest with merchants.Of course, if consumers realize that they have been deceived, the merchant is definitely not a smart merchant, because his customers are getting fewer and fewer; a truly smart merchant will make consumers willing to be fooled without realizing it.

Another example: For example, you want to eat in a nearby restaurant, but you don’t know which one is the best, so the best way is to find a brand store that everyone is familiar with, because everyone knows that the brand store is not bad.Since customers don't go from shop to shop to find the best restaurants, established restaurants are generally able to charge more.

The 21st century is an information society. For individuals, the more information they have, the more likely they are to make correct decisions.However, the reality is that a small number of people monopolize information on the state of things, while the vast majority lack information on the state of things.Therefore, we need to improve our ability to obtain information, increase our access to information, and use our wisdom and rational minds so that we can minimize the loss caused by information asymmetry when consuming.

Guide consumption, don't let merchants take advantage of you
A salesperson only had one customer a day, but made a deal of $5.8!
The manager was amazed.The salesman explained: "I sold the man a hook first, and then I sold him a fishing rod and a fishing line. I asked him where he planned to go fishing, and he said he wanted to go to the south coast. I said that it would be convenient to have a small boat. So he bought the little six-meter motorboat. He said his car might not be able to pull it. So I took him to the auto department and sold him a big car."

The manager was overjoyed: "Buy a fishhook, how can you sell so many things?"

The salesman replied, "No, actually his wife has a migraine, and he came to buy an aspirin. So I said to him, 'You're free this weekend, why don't you go fishing?'"

This is a joke about guiding consumption. In fact, the joke is not just to make people laugh, but to reflect the reality in a way of laughing - to show us the great role of "guiding consumption".

The so-called guided consumption means that manufacturers guide consumers, and manufacturers produce and sell innovative products or products that are not of high concern to consumers.Manufacturers must find ways to guide consumption, create demand, and convert consumers' unseen or potential needs into actual needs.

In life, for example, when you go shopping in a shopping mall or a bookstore, you will always be stopped by some people and let you experience beauty salons, education and training, or food and beverages for free.You eat and drink for free and enjoy it for free, what are they planning?Wouldn't it be good for them to save these expenses?Careful consumers will find that generally, the products that customers are invited to experience for free are products that they have never seen before, which is obviously a kind of guided consumption.

What factors prompt merchants to adopt the strategy of "guiding consumption"?This is mainly determined by two factors:
One factor is the arrival of the era of overproduction.All kinds of commodities are unprecedentedly abundant, allowing the original "consumption guidance" (meaning that manufacturers produce and sell products according to the actual needs of consumers to meet the needs of consumers).The concept of satisfying demand is useless. Consumers are no longer faced with a shortage of materials, but with too many commodities and it is difficult to choose.

(End of this chapter)