The world's funniest economics stories

Chapter 9 Milk Coke Economics--An Interesting Economic Phenomenon (2)
Although the refill service will add some cost, this part of the cost is quite low.But why would a restaurant want to offer free refills?From a restaurant's perspective, the existence of this practice contradicts the logic of perfect competition.

Therefore, understanding "marginal cost" plays a very important role in improving the competitiveness of enterprises.This will not only attract more customers to come to buy goods, but also play a very important role in your own profits.

There is a difference between marginal cost and average cost per unit. Average cost per unit considers all products, while marginal cost ignores the value before the last product.For example, the average cost per car includes a large fixed cost [distributed across each car] of producing the first car.Marginal cost does not take into account fixed costs at all.

The marginal cost method is a method of management accounting, which is used to calculate the production cost of products or labor services in a certain period of time, to price finished products, work in progress, and inventory, and to measure the profits obtained by the company.Under the marginal cost method, all costs of an enterprise are divided into fixed costs and variable costs.

In the marginal cost method, it should be noted that in the long run, no cost is fixed, and fixed costs are no exception.In the long run, it is a variable cost, but the marginal cost method does not recognize this when calculating the cost.

In addition, the cost calculated in the marginal cost method does not include fixed costs, but it ignores that when the output increases, the total cost per unit will actually decrease; If a product is produced, the fixed cost will be divided into smaller amounts, so that the total cost per unit will decrease accordingly.

4. I would rather buy the expensive one than the right one - Giffen goods
"Influence" is the masterpiece of American Robert Cialdini.In this book there is a story related to turquoise:

A man opened a jewelry store selling Indian jewelry in a very famous tourist attraction in Arizona, USA.This year, during the peak tourist season, the business of the jewelry store was booming. All kinds of expensive gemstone jewelry sold well, and the boss was very happy.But after a period of time, the boss found that among the many accessories, only the cheap and shiny turquoise was always ignored.For this reason, he was very distressed.

After trying methods such as placing the turquoise in the most obvious place and asking the clerk to sell it vigorously, etc. to no avail, in order to get rid of it as soon as possible, the boss had to make a decision to dispose of the batch of turquoise at a loss.Before going out to buy, he reluctantly left a note to the clerk: "All turquoise jewelry, the price is multiplied by half."

Coincidence just happened.The clerk who received the note hurriedly read the note, and raised the price of all the turquoise jewelry.Since then, turquoise has become the signature item of this jewelry store.When the boss came back from the purchase and learned about the sales of turquoise, he realized that it was the clerk's mistake of "multiplying by [-]/[-]" as "multiplying by [-]" that made turquoise popular.

We all know that the normal law of supply and demand is that when the price of a commodity rises, the quantity demanded will fall accordingly.But in the previous story about turquoise, we saw that although the price of turquoise was obviously twice as expensive, it was sold out in a short period of time.What is the reason?Here, we introduce a new concept based on this special supply-demand relationship—Giffen commodity, that is, a commodity whose demand rises as its price rises.

The concept of Giffen goods originated from a phenomenon observed by Irish scholar Robert Giffen.

In 1845, a great famine broke out in Ireland.In this famine, although the price of potatoes that people eat every day has been soaring, people's enthusiasm for potato consumption has never diminished, causing a situation of "the more you buy, the more you buy".Analyzing the reasons, in the special period of famine, when the prices of all necessities of life have risen, but people's income has become less and less, relatively cheap potatoes have become people's first choice of food.As a result, people's demand for potatoes increases, causing the price of potatoes to increase faster than the price of other foods.Later, in order to commemorate Giffen, people called the economic phenomenon he discovered that the price increased and the demand increased accordingly as the Giffen phenomenon.

In daily life, the Giffen phenomenon is often seen in the stock market.When the price of a certain stock rises, many people will focus on this stock and rush to buy it frantically.On the contrary, when the price of a stock keeps falling, the number of people who buy it decreases accordingly. Even those who own the stock will find ways to sell the stock as soon as possible.People have the psychology of maximizing profits, so the higher the stock price, the more people buy it, because the higher the stock price, the more profitable people are.Some people say that the world is full of Giffen goods and Giffen phenomena.For example, in Beijing, many people have chosen to buy houses along the subway lines in the suburbs in recent years.Although living in the suburbs is not as convenient as living in the city, the environment and transportation are not as good, but people will have much less financial pressure to buy a house.As a result, when more and more people flock to the suburbs to buy houses, the housing prices in the suburbs are also raised.Nevertheless, because the housing prices in the suburbs are relatively cheap compared to the urban areas, no matter how the housing prices rise, people generally choose to buy houses in the suburbs.

Under certain environmental conditions, Giffen phenomena will always appear in different forms.Economists believe that the Giffen phenomenon is an abnormal phenomenon in the market economy and an exception in the law of demand, but it is also an objective phenomenon that people cannot avoid.

Just like the Irish people had to choose to buy potatoes with rising prices in order to survive in the famine, in extraordinary times, people "buy the higher the price" more out of fear, fearing that the price will rise even higher in the future , while individual merchants officially took advantage of people's psychological panic to drive up prices.For example, the price increase in the early stage of "SARS" and the price increase of edible salt after the Japanese nuclear leak occurred in panic.

In addition, the phenomenon of "the higher you buy, the more you buy" has always been inseparable from the market situation and social atmosphere.High-priced gifts of several thousand or even tens of thousands of yuan, hundreds of thousands of meals per table in restaurants, gifts and treats, for the sake of contacts and customers, the higher the price, the more respect and importance you show for others.

Of course, what is often used by businesses is people's vanity.In the story of turquoise, as an ornament, people spontaneously formed a situation of "the higher the price, the more you buy" in order to show their worth and improve their status.

A normal commodity is a commodity whose quantity demanded increases as the consumer's real income rises.

Low-end goods, the goods whose demand decreases with the increase of consumers' real income are called low-end goods.

With the enhancement of one's own economic ability, people will have higher and higher requirements on the grade of consumer goods.Accordingly, we divide commodities into normal commodities and low-grade commodities.The consumption of the former will increase with the increase of people's income, and the consumption of the latter will be just the opposite.

5. Why did Gandhi throw away the other shoe – sunk cost
Gandhi is known as the "Mahatma" in India.Once, "Mahatma" Gandhi was traveling by train, because he happened to meet an acquaintance at the station, and chatted a little more, until the train was about to start, Gandhi stepped into the door in a hurry.Unfortunately, just as the train was starting, one of his shoes was pinched by the door and fell out of the car accidentally.This scene made the people next to me feel very embarrassed, even a little overwhelmed.At this moment, Gandhi quickly took off the other shoe and threw it in the direction where the first shoe fell.This move shocked the people present.At this time, a curious person next to him asked him why he did this. Gandhi said: If a poor man happens to pass by the railway, he can pick up a pair of shoes.

Since the lost shoe is meaningless to me, fortunately, I generously threw the other shoe down, so that the person who found the shoe can continue to use the value of the shoe.When he loses a very necessary thing, he considers that this thing can be beneficial to others. Such an open-minded, humorous, and calm attitude makes Gandhi an admirable person. His personality charm is also reflected in this detail. , displayed vividly.

For Gandhi, lost shoes were impossible to retrieve, so the shoes became his sunk cost.But he calmly faced his "loss" with a broad mind, and threw the other shoe out of the window, in order to fulfill the person who picked up the shoe, and let his sunk cost benefit others. How can this kind of bearing not be admirable? Woolen cloth?

A sunk cost is a cost that has already occurred due to a past decision and cannot be changed by any present or future decision.When people decide whether to do something, they not only look at whether it is good for them, but also whether they have invested in it in the past.We call these unrecoverable expenditures, such as time, money, energy, etc., as sunk costs.

As a concept in economics, sunk costs refer to costs that have already been paid and cannot be recovered. They are often compared with variable costs. Variable costs can be changed, while sunk costs cannot be changed.Here, sunk costs have the concept of "non-recoverable".

In fact, "overwhelmed water is hard to recover" is a kind of sunk cost.For example, on the first day of the first lunar month, you and your lover bought a ticket for a flower show, which has already been paid and cannot be refunded.But after half of the transfer, I feel very boring. At this time, the money you paid can no longer be recovered, and the price of the park ticket is the sunk cost.

Examples of sunk costs can be said to abound around us.There is such an example that can help us further understand the profound meaning of sunk costs.

There is an old man who likes to collect antiques. Once he comes across a favorite antique, he will try his best to buy it no matter how much it costs.One day, he bought a long-awaited ancient porcelain vase at a very high price in the antique market.Excited, he tied the baby to the back seat of his bicycle and rode on the bicycle, rushing home quickly.Unfortunately, as the straps came loose, on the way home the porcelain bottle slid off the back of the bike and shattered with a loud bang.However, when he heard the sound, the old man didn't turn his head back, and he still rode his bike steadily forward.

At this time, the enthusiastic people on the side of the road couldn't help shouting to him: "Old man, your porcelain bottle is broken!" The old man still didn't look back and said, "Did it break? It must have been broken by the sound." , irreparable!" The old man's back quickly disappeared into the vast crowd...

Of course, sometimes sunk costs are only part of the price.For example, you bought a color TV, and after watching it for a few days, you sold it on the second-hand market at a low price.At this time, the difference between the original price and your selling price is the sunk cost.In this case, the sunk cost changes over time, and generally speaking, the longer you watch that TV, the lower your selling price will be.

Sunk costs in production and operation, generally speaking, the stronger the liquidity, versatility, and compatibility of assets, the less their sunk costs.Fixed assets, R&D, and special-purpose assets are all easily sunk, and division of labor and specialization often correspond to certain sunk costs.In addition, the sinkability of assets is also time-sensitive and will continue to transform over time.Taking a fixed asset with certain versatility as an example, if it is abandoned after the unused or depreciation period, only a small part may become a sunk cost, while the halfway abandonment will have a higher degree of sunk.

6. Why the rich man becomes bald - market failure
Here is a fable:

Once upon a time there was a rich man who married one wife and one concubine.The wife is gentle and virtuous, but older than the rich man, and the concubine is beautiful and affectionate, and much younger than the rich man.With a wife and a concubine, the rich man feels very happy.However, due to the age gap, no matter whether it is a wife or a concubine, when they are with the rich man, they feel very unsuitable.

The first is the wife. Although the wife has made a lot of efforts, she always feels that when she is with the rich man, she will appear older than the rich man, and she will always give people the feeling of an old wife and a young husband.After much deliberation, she finally came up with a good solution: Pull out a little bit of the black hair on the rich man's head every day. As long as he has less black hair on his head, he will naturally look older. This may be a better match...

Because she is much younger than the rich man and has lived with the rich man for a long time, the concubine also feels very uncomfortable.Every time I was with the rich man, I looked and felt like a father and daughter.After thinking for a long time, she finally came up with an idea that satisfied herself: Wouldn't it be good if I pulled out a little bit of the white hair on the rich man's head every day?With less white hair on the rich man's head, he will definitely look much younger.

So, monogamy and concubine started their own actions.If the rich man is with his concubine, the concubine will pluck his white hair; if the rich man is with his wife, the wife will pluck his black hair.It didn't take long for the rich man to become bald...

(End of this chapter)