[LMB] OT: Economics....

Paula Lieberman paal at gis.net
Wed Jun 29 16:07:00 BST 2011


A long long tim. ago I took Economics 101 in college, with Prof. Solow the 
lecturer teaching from Samuelson's book....

The basis of economics consists of things which include the following:
a) observations of how people behave regarding resources and choices
b) hypotheses turned theory regarding people's behaving with respect to 
supply and demand
c) assumptions of what are requirements and how, based on data, people make 
decisions regarding food, shelter, entertainment, etc.
d) implicit constraint equations, which may be more qualitative than 
quantitative sometimes, and other times more quantitative:

E.g.

I have 1000 dollars.
Basic food which will keep me alive costs $200
Fancy food costs $500
Basic shelter costs $300
Fancy shelter costs $600
Cheap entertainment costs $50
Fancy entertain costs $500.

There are also zones in which one can be between the high end and the low 
end.
People optimize based on available funds (or credit....), and how much more 
willing they are to pay for the high end stuff, and how much value the high 
end stuff has for them.

E.g., the person whose interests are gourmet food, and doesn't care about 
high end housing, and isn;t much interested in entertainment, is going to 
spring for the fancy food, basic shelter, and cheaper entertainment.  The 
person who cares for the fancy housing will skimp elsewhere.    This 
constitutes demand, what people are willing to pay for.... the supply is 
what';s available.  The pricing in -rational- systems reflects both the 
demand and costs to produce something.... high demand, unless there are 
price controls, and low supply, makes the price of something high.... low 
demand and high supply should make the price low, except if there are price 
controls holding the price up, such as cartels gating the availability, or a 
greedy monopolists, etc.

All those things are factors in pricing... another factor, harder to 
quantify and also left out, is belief....  someone who hates the ocean, is 
NOT going to given any free choice, vacation spots which involve ocean, even 
if that;s the most afforable vacation choice.    And in times of 
uncertainty, prices go up because of the uncertainty--buy it -now- applies, 
because people have no confidence that it will be available later, if they 
need it now and are worried about it not being available later, and if they 
can afford it....people in a panic, or people doing something out of 
religious or near-religious fervor, are NOT acting out of basic economics 
rational bases, and standard supply-demand rational economics of "if you 
can't afford the price of the thing/the price is too high for what you 
normally purchase, you substitute something less expensive"

There's lots of trend analysis, and forecasting based on trend--the problem 
with that is the math models usually don;'t pay any attention to what 
the -drivers- actually are, analysis predicting the future based on the 
shape of curves and failing to look at WHY the curve has the shape it has, 
is a major failing and source of bad analysis....

--Paula Lieberman 




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