The world's funniest economics stories

Chapter 7 Thinking like an economist gives you the magic power to see through the world (3)
For example, in an enterprise, if you are better at management than me, then you have an absolute advantage in management, and you should sit in the office and be responsible for management work.However, in terms of comparative advantage, your hands-on ability is unmatched.

In this case, I can only be in charge of management, and you are in charge of hands-on affairs.So in an enterprise, your comparative advantage is hands-on ability, while mine is management ability. Our division of labor and cooperation is based on comparative advantages, not absolute advantages.

Absolute advantage theory, also known as absolute cost theory and geographical division of labor theory, was proposed by Adam Smith, one of the representatives of the British classical economics school.

When two countries produce two commodities and use one factor of production - labor, if it happens that country A has high labor productivity in one commodity and country B has low labor productivity in this commodity, then country A has Absolute advantage.If the two countries carry out specialized production division and participate in trade according to their respective absolute advantages, both countries can benefit from trade.This trade benefit comes from the specialization of labor that promotes the improvement of labor productivity.

Absolute cost refers to the absolute difference in the labor cost of producing a certain product between two countries, that is, the labor cost consumed by one country is absolutely lower than that of another country.

6. Why does she want to "eat east and live in west"-opportunity cost
Many people are familiar with the idiom "east food, west lodging".

During the Warring States period, there was a family in the state of Qi whose daughter was very beautiful. The people who came to propose marriage almost broke through the threshold, but the girl was still dissatisfied.Several years have passed, and the parents are very anxious to see that the girl is about to miss the best age for marriage.On this day, two more men came to propose at the same time.Unexpectedly, the daughter who hid behind the curtain to observe, actually developed a good impression of the two men at the same time after the two elders exchanged pleasantries with the visitor.

Knowing the wishes of their daughter, the two elders were caught in a dilemma for a while.How to choose?The man from the east family is ugly, but very rich; the man from the west family is a handsome young man, but his family is very poor, whichever he chooses will result in loss!

Let your daughter decide for herself!So, the two elders told their daughter which one they liked more, and it was inconvenient to say clearly, so they let them know what she meant by baring one arm.

After thinking for a while, the girl bared both arms at the same time.The parents felt very strange and asked the reason. The daughter said: I want to eat at the host's house and stay at the west's house.

There is no such good thing as food in the east and lodging in the west, but human desires are always endless, and it is impossible to have the best of both worlds in anything.Therefore, if you want to get good things and pursue perfection, the role of hard work and choice cannot be ignored.

There are gains and losses.Just like the woman from Qi State in the idiom story, when one's own resources are limited, one must learn to give up.But making a choice is not an easy task. "You can't have both fish and bear's paws." If you choose to eat fish, you can't have bear's paws. At this time, bear's paws constitute the opportunity cost of choosing to eat fish.Any choice behavior has an opportunity cost. Economists say that there is no free lunch in the world, and this is the reason.

Opportunity cost, also known as "choice cost", refers to the loss after making a choice, and the maximum benefit that may be obtained by not making that choice.In other words, in order to get one thing, you must give up another thing.In the idiom story, the reason why women in Qi State cannot make decisions is that no matter which man they choose, it will inevitably cause a loss in opportunity cost.

When a firm decides to produce a car, it means that it is impossible for the firm to produce 20 more bicycles with the economic resources used to produce cars.We can then say that the opportunity cost of producing one car is 20 bicycles.If the expression of the quantity of physical goods is replaced by the quantity of money, and assuming that the value of 20 bicycles is 10 yuan, it can be said that the opportunity cost of a car is other goods worth 10 yuan.

In the evening, a friend treats you to a big meal, so you have to turn down an extra opportunity that can earn 100 yuan, so 100 yuan is your opportunity cost of having a big meal.

People make choices all the time: whether to eat bread or to eat food; whether to buy short clothes or long clothes; whether to continue working or to eat first; Movies are also attractive to themselves, and when it is difficult to decide, many people choose to flip a coin to determine...

Some people say that the most difficult thing in life is not to fight for it, but to give up selectively.Indeed, when faced with major decisions, the higher the opportunity cost, the more difficult our choice is because we are never willing to give up anything we might get easily in our hearts.

Accounting cost, also known as historical cost, refers to the objective and tangible expenditure recorded in the company's account books by accounting, including raw materials, power, wages, rent, advertising, interest, land and house rent, Expenses such as depreciation.It is worth noting that accounting costs are explicit costs, which can be measured in currency and can be reflected in accounting books.

Hidden cost is a cost hidden in the total cost of the enterprise and free from financial audit supervision.It is the future cost and transfer cost with a certain degree of concealment caused intentionally or unintentionally by the behavior of the enterprise or employees. Inconsistencies between top and bottom, distortion of information and instructions, and inefficiency caused by the failure of leadership authority.Compared with explicit costs, these costs are more hidden, difficult to avoid, and difficult to quantify.

7. Thieves also understand economics - cost-effectiveness
This is a story about two thieves.

Thief A is a habitual offender who steals small items easily.Every evening, he takes a walk to carefully observe the situation in the nearby bicycle garage, and then prepares the basic tools for nighttime car theft.In this way, for many nights, with his hands and a wrench, he easily stole brand-new bicycles for himself.He sold the car in time when the rumors were not tight. After a long time, he also saved a small fortune.Because of his skill, he never missed a shot.

Unlike thief A, thief B, who is also a repeat offender, specializes in stealing banks and shopping malls.Before committing a crime, thief B will prepare sufficient guns and ammunition, and before committing a crime, he will make the worst plan and say goodbye to his wife and children, because stealing banks and shopping malls takes great risks, and a little negligence It is difficult to escape legal sanctions.Every time he succeeds, thief B and his whole family will live a period of time without going out.

Habitual thieves cannot escape the law after all.After being arrogant for a while, thieves A and B were finally arrested by the police.In the end, both were sentenced.

Everything is relative. If you compare stealing a bicycle with stealing a bank, stealing a bicycle is a commonplace thing. Although this behavior has long been regarded as a public nuisance, it is not really news, while stealing a bank is rare. , but it is a major news broadcast by the media.Here, the story of two thieves can help us understand the economic concept of cost-benefit.

Anyone including thieves will think about whether it is cost-effective to do something.Whether it is cost-effective here is to compare the benefits and costs in terms of economics, that is, to analyze the cost-benefit.

Cost-benefit analysis is to summarize the costs and benefits that may occur in the investment, and use quantitative analysis methods to calculate the ratio of costs and benefits, so as to judge whether the investment project is feasible.Cost-benefit is a contradictory unity. The two are conditions for each other, coexist with each other, and contradict each other. One increases and the other decreases.

In the story, thief B’s income from stealing a bank is much higher than thief A’s from stealing a bicycle, but the cost of thief B is also much higher than that of A.Committing crimes in heavily guarded banks is very likely to be caught, and if you miss, you will be punished more severely.Even if the operation is very smooth and a bank is stolen, the various law enforcement agencies will definitely increase their efforts to detect the case, so the possibility of the perpetrator being caught is still very high.

In the same way, although A who steals a bicycle has less income than B who steals a bank, his cost is also much lower.The anti-theft performance of bicycle is poor, and armor hardly needs any tools for committing crimes, and the input cost on tools is almost zero.In this way, A has many opportunities to commit crimes, and the miss rate is much lower.Even if you are caught committing a crime, the penalty for stealing a bicycle is lighter than that for stealing a bank.Under such circumstances, after analyzing and comparing the costs, the thieves will generally choose to steal a bicycle with a lower cost like A, and will not easily choose to steal a bank like B.

In addition, the law of development of things determines that everything has cost-effectiveness.In terms of costs, it can generally be divided into two levels: direct, tangible costs and indirect, intangible costs; in terms of benefits, it includes direct, tangible benefits and indirect intangible benefits.

Cost refers to the various expenses incurred by an enterprise for producing products and providing labor services. In short, it refers to the expenditure for obtaining assets or labor services.Cost consists of product cost and period cost, both of which are consumption of production and operation, and must be deducted from operating income, but the deduction time is different.

Product cost refers to the cost that can be included in the inventory value, and period cost refers to the production and operation costs that are not included in the product cost, which are directly deducted from the current revenue, including all production and operation costs other than the product cost.

8. The Bachelor Drinking Free Beer – Exchange Rates
I once read a story about exchange rates in a book.

On the border between the United States and Mexico, a tourist bought a glass of beer with 0.1 pesos in a small town in Mexico, paid 1 peso, and got back 0.9 pesos.Then, he came to a small town under the jurisdiction of the United States and found that the exchange rate between the US dollar and the peso was 1 pesos to the US dollar.So he exchanged the remaining 0.9 pesos for 0.9 dollar, then took out 1 dollars to buy a bottle of beer, and pocketed the remaining 0.1 dollars.

Back in the small town of Mexico, he found out again that the exchange rate between pesos and dollars was 1 dollars to 0.9 peso.Soon, he exchanged 0.9 dollars for 1 peso.After that, he bought a bottle of beer for 0.1 pesos...

So again and again, he is always drinking free beer.

Why is this tourist so lucky?The tourist can continue to drink free beer in the two countries because the exchange rates of the two countries are different.In the United States, the dollar-peso exchange rate is 1:0.9, but in Mexico, the dollar-peso exchange rate is about 1:1.1.In Mexico, the peso-dollar exchange rate is 1:0.9, but in the United States, the peso-dollar exchange rate is about 1:1.1.Thanks to the difference in the exchange rates between the two countries, the tourist did not spend a penny and drank free beer, but the hotel still got money.Who paid for it?If the U.S. exchange rate is correct and Mexico undervalues ​​the peso, the beer is paid for by Mexico.If Mexico's exchange rate is correct and the U.S. undervalues ​​the dollar, the beer is paid for by the U.S.If neither country has the correct exchange rate, the money is paid jointly by both parties.

Exchange rate, also known as "foreign exchange market or exchange rate", is the most important adjustment lever in international trade.The exchange rate of one country's currency to another country's currency is the price of one currency expressed in another currency.Since the names and values ​​of the currencies of various countries in the world are different, a currency of one country must have an exchange rate for the currencies of other countries, that is, the exchange rate.

Changes in exchange rates can have an impact on the economy.In an open economy, the international flow of goods and capital tightly links the economies of all countries.Changes in exchange rates have an important impact on a country's macroeconomic operations.The depreciation of a country's exchange rate can reduce the relative price of its export products in the international market, thereby enhancing competitiveness and increasing exports.Because of this, some countries stimulate their economies by depreciating their exchange rates.

Usually, we can divide the exchange rate into nominal exchange rate and real exchange rate. The nominal exchange rate is the exchange rate between one country's currency and another country's currency. For example, the exchange rate between the US dollar and the peso mentioned earlier is 1:0.9.This is the rate we use when exchanging in the foreign exchange market.The real exchange rate is the rate at which goods and services in one country are exchanged for goods and services in another country.

The reason why people exchange one currency for another is to make purchases in other countries.In the context of economic globalization, an item should be sold at the same price in different countries, otherwise arbitrage activities will occur, and the final result is the elimination of price differences.

The direct pricing method is a method of expressing the foreign currency price with a certain amount of domestic currency based on the unit quantity of foreign currency; the indirect pricing method is just the opposite.Most countries in the world use the direct pricing method, and only a few of the US dollar, British pound, euro, etc. use the indirect pricing method.

(End of this chapter)