The world's funniest economics stories

Chapter 6 Thinking like an economist gives you the magic power to see through the world (2)
In the 16th century, the boiling phenomenon of bad money driving out good money in England was later called "the effect of bad money driving out good money" by economists.The root of this phenomenon lies in the information asymmetry of the parties.That is to say: the two sides of the trade have different understandings of the fineness or authenticity of the currency. In this way, the holders of bad coins can easily spend the bad coins in their hands, and the holders of good coins will suffer without knowing it. loss.

The phenomenon of "bad money driving out good money" is common in the market.Here, compared with good money, bad money naturally becomes "defective", which is "lemon" in American slang. In 2002, Akerlof won the Nobel Prize in Economics for his paper "The Market for Lemons: Quality Uncertainty and Market Mechanisms," published in 1970.In this paper, the "market for lemons" refers to the market for defective goods.

The lemon market, also known as the Akerlof model, refers to a market with asymmetric information, that is, in the market, the seller of the product has more information about the quality of the product than the buyer.In extreme cases, the market will stop shrinking and disappear, which is the adverse selection in information economics.A market for lemons occurs when sellers of products have more information about product quality than buyers, with low-quality products continually driving out high-quality products.The lemon market effect means that in the case of information asymmetry, good products are often eliminated, and inferior products will gradually occupy the market, thereby replacing good products, resulting in inferior products in the market.

According to conventional understanding, if the price of a commodity is lowered, the quantity demanded of that commodity should increase; if the price of a commodity is raised, the quantity supplied of that commodity should increase.However, due to the incompleteness of information, sometimes, when the price of goods is lowered, consumers will not make the choice to increase purchases, and if prices are raised, producers will not increase supply. "Second-hand notebook market model" can vividly explain this phenomenon.

Assuming there is a second-hand notebook market, people who buy computers and those who sell computers have an asymmetric grasp of the quality information of notebooks. Buyers can only know the quality information of notebooks through the appearance, introduction and simple performance tests of notebooks. It is difficult to accurately judge the quality of the notebook.Therefore, for a buyer, before buying a second-hand computer, he does not know which computer is of better quality, he only knows the average quality of notebooks on the market.

Of course, buyers know that a good notebook in the market will cost at least 6000 yuan, and a bad notebook will cost at least 2000 yuan.Then, people who buy computers are only willing to bid based on the average quality, which is 4000 yuan, without knowing the quality of the notebook.However, the sellers of those notebooks with good quality will not be willing, and their notebooks will be withdrawn from this second-hand notebook market, leaving only low-quality sellers in the market.Repeatedly, there will be fewer and fewer good computers in the second-hand notebook market, and eventually they will fall into disintegration.

In the case of information asymmetry between buyers and sellers, the conclusion of "survival of the fittest" drawn in traditional market competition will be disintegrated, and the phenomenon of "bad money driving out good money" will follow.In fact, if we observe carefully, we can find that the "lemon" market is everywhere.

For example, when taking an exam in school, many people ask everyone to go out for a meal and cheat to realize their wish of getting a scholarship in order to get a scholarship.When there are more people who think this way, the number of cheaters will also increase. The result is that there are more people who get high scores in the whole class or grade.This information asymmetry makes the school have to determine a higher standard for granting scholarships.As a result, some students who studied hard and had excellent grades but did not cheat lost their qualification advantage in the evaluation, and those who did not work hard were easily ranked among the candidates.Recognizing the "lemon" phenomenon can help us avoid its harm in many cases.

Adverse selection refers to the phenomenon that inferior products drive out high-quality products due to information asymmetry between the two parties and the decline in market prices, and then the average quality of market-traded products decreases.

Moral hazard is a concept in the category of economic philosophy proposed by Western economists in the 80s, that is, "people engaged in economic activities take actions that are not beneficial to others while maximizing their own utility." Or in other words: when one party to the contract Selfish behavior that maximizes one's own utility without fully bearing the consequences of the risk.

4. Sell the comb to the monk - the law of supply and demand
There is such a classic case in the sales world-selling a comb to a monk.

In the process of training marketing personnel, a certain company posed such a difficult problem to the marketing personnel-to sell combs in temples.Everyone present expressed doubts about such a proposition.How is it possible to sell combs to monks?Monks have no hair, so they don't need a comb at all.Faced with such a task, many people retreated and gave up this training task. Only Xiao Li, Xiao Wang, and Xiao Zhang accepted this challenge.

The 7-day deadline came soon, and the three returned to the company to report their sales results.Surprisingly, all three of them sold the combs.But Xiao Li only sold 3, Xiao Wang sold 3, and Xiao Zhang actually sold 10.Under the same conditions, why is there such a big difference in the results?

The answer was quickly announced by the sales executive.

Xiao Li ran to three temples and was abused and beaten by countless monks, but he still steadfastly sold to the monks.On the fifth day, he suddenly opened his eyes and told the monk the following: the hair should be combed frequently, not only to relieve the itching, but also to comb the hair when it is not itchy, so as to activate the blood vessels and benefit the health.As a result, 10 monks actually bought his combs.

Xiao Wang went to an ancient temple on a famous mountain. Due to the high mountain and strong wind, the hair of the faithful men and women who came to offer incense were all blown up.Xiao Wang found the abbot and said: "It is disrespectful to face the Buddha with unkempt hair and dirt. You should put a wooden comb in front of each incense table for faithful men and women to comb their hair." The abbot thinks it is reasonable.There were 10 incense cases in that temple, so the abbot bought 100 combs.

Xiao Zhang went to a well-known treasure temple in the remote mountain where incense was very popular, and said to the abbot: "Everyone who comes to offer incense has a pious heart, and the temple should be rewarded. Combs, your calligraphy is outstanding, you can engrave the word 'Jishan Comb' and give it as a gift." The abbot was overjoyed after hearing this, and immediately bought 1000 combs.

"Good arms and legs are not as good as a good mouth." Indeed, there is nothing that cannot be sold in the world, only people who can't sell things.

The famous American economist Paul Samuelson once said that economics is not as difficult as we imagined. We only need to master two things: one is supply and the other is demand.

Demand means that consumers are willing to buy the commodities they need under certain price conditions within a certain period of time.Needs are not natural and subjective desires, but effective needs.It includes two conditions: consumers' desire to buy and purchasing power.

In the case of selling combs to monks, we can see that consumers' desire to buy will be affected by external factors. That is to say, if Xiao Li and Xiao Wang can tell the abbot like Xiao Zhang, maybe Not 10 or 100 combs are sold.But it will also be affected by purchasing power, because Xiao Li only went to a small temple and his purchasing power is not strong, while Xiao Zhang went to a treasure temple deep in the mountains.

Supply refers to the quantity of the commodity that producers are willing and able to supply for sale at various possible prices within a certain period of time.Supply also refers to effective supply, and two conditions must be met: the producer has the willingness to sell and the ability to supply.

Whether it is demand or supply, in addition to their own willingness and ability, it is also affected by a condition, that is, the price of the commodity.The higher the price of a commodity, the lower the quantity demanded, and the higher the supply, the lower the price.

The law of demand is an important law in microeconomics, that is, under normal circumstances, demand is inversely proportional to price, the higher the price, the smaller the demand, and the lower the price, the higher the demand.

Since quantity demanded decreases as price rises and increases as price falls, we say that quantity demanded is negatively related to price.This relationship between price and quantity demanded is true for most goods in the economy, and is so pervasive in fact that economists call it the law of demand.

Other things being equal, an increase in the price of a good decreases the quantity demanded of that good.But in a few cases, the opposite situation will occur, that is, the higher the price, the greater the demand, and the lower the price, the smaller the demand.This kind of thing is usually a luxury item with a symbolic status in society, such as diamonds, antiques, etc. They often increase the demand because of the increase in price.

A demand curve is a curve that represents the functional relationship between the price of a commodity and the quantity demanded of that commodity.It shows the amount of the product that consumers are willing and able to buy at various possible prices within a certain period of time, other things being equal.

The price elasticity of supply is conceptually similar to the price elasticity of demand, except that it measures the response of supply to a change in price. More precisely, the price elasticity of supply is the percentage change in quantity supplied divided by the percentage change in price.Supply elasticity is most useful under conditions of perfect competition.

5. Yang Zhenning chooses the secret of theoretical physics--comparative advantages
The name of the famous physicist Yang Zhenning has always been printed in people's minds together with the information of "No.1 Chinese Nobel Prize".

The gauge field theory proposed by Yang Zhenning in 1954 later developed into the basis for integrating and understanding the three kinds of interaction forces of elementary particles: strong, weak, and electromagnetic.Since this development has made great contributions to theoretical physics, Yang Zhenning has always been admired by international scholars.

However, Yang Zhenning, who has outstanding achievements in theoretical physics research, did not work smoothly when he was doing experimental physics research at the University of Chicago. The joke of "Where there is an explosion, there is Yang Zhenning" has spread almost all over the campus.Lack of hands-on ability has almost become his Achilles heel.

Faced with the bottleneck in his research work, Yang Zhenning, a former child prodigy and genius in people's eyes, made an in-depth analysis of his strengths and weaknesses in physics research in distress.Finally, it dawned on him.

Yang Zhenning realized that although he did not have much advantage in experimental physics, which strictly required hands-on ability, in terms of theoretical physics research, relying on the solid mathematical foundation he had been nurtured and cultivated by his father since childhood, if he could form a theoretical framework for physics A series of equations of the above-mentioned equations are studied step by step, and a breakthrough will still be found, and certain results will be achieved in the end.After the comparison, he felt that he had a more obvious advantage in theoretical physics research.

Later, under the advice of his mentor Teller, Yang Zhenning, who had identified his own advantages, switched to theoretical physics. In 1957, he won the Nobel Prize in Physics for his remarkable research results.

We have all heard the story of "Tian Ji Horse Racing".The horses in Tian Ji's hands, no matter which level they are in, are inferior to King Qi's horses.

However, Tian Ji chose this arrangement: use the dismounted horse with no advantage at all to Qi Wang's fully superior mounted horse, and then use the top and middle horses to deal with Qi Wang's middle and dismounted horses, and finally won the game.Obviously, in this match, Tian Ji had a comparative advantage.

For Yang Zhenning, it is more advantageous to engage in theoretical physics research.After rational analysis, he chose theoretical physics research that could give full play to his comparative advantages, and he finally achieved great success.

The theory of comparative advantage was proposed by David Ricardo in "Principles of Political Economy and Taxation".The theory holds that the basis of international trade is the relative difference [rather than the absolute difference] of production technology, and the resulting difference in relative cost.

"Two advantages are the most important, and two disadvantages are the least important." According to this principle, each country should concentrate on producing and exporting products with "comparative advantages" and importing products with "comparative disadvantages".

The same is true for the comparative advantages of the two countries, and it is also true for every unit and individual.Here's a little joke to make it easier for us to understand.

Bill Gates is said to love cleaning his garden, but he ended up leaving it to a high school student.Bill Gates said that assuming he can write 100 programs or clean 100 square meters of back garden every day, and high school students can write 1 program or clean 50 square meters of back garden every day, although it seems that he is cleaning the back garden He has an absolute advantage over high school students, but his comparative advantage is still writing programs, and then spending a few dollars to ask high school students to help clean the back garden.

When everyone can specialize in what they are best at, production will become more efficient, so that the total amount of material wealth that can be created by the entire society and its overall economic welfare will increase, which also reflects from the side " I am born to be useful".

(End of this chapter)