Economics: My journey of turning my greatest fear into my greatest Asset

I never knew how this subject turned from being my greatest fear to being the most important subject in my whole academic life. I’m a commerce student let me tell you that first so that you can understand why I was scared of this subject before. Back in high school, the subject was just theory. We mugged up theories and dumped them in the paper. A similar trend followed when I was in undergrad. We studied economics just for the sake of passing the paper. But I never understood how could I apply these theories in real life. When we were in school we always had this rebellious attitude that made us ask the question how can we apply these theories in real life or will it ever be useful to us?

But back then I didn’t know that I would be in a B-school. Studying economics here was different. We didn’t just study economics we applied it. And boy oh! Boy, we applied it everywhere. From restaurants to big business houses to even on ourselves. We didn’t realise that economics could be applied in such ways.

But don’t think that’s the only way we applied economics. After my mid-term exam in my 1^st trimester, my economics teacher introduced us to a thing called Simulation. To be honest it is one of the best ways to understand economics. I wonder why didn’t our school and undergrad colleges teach us economics in this way. Every week playing the simulation has made my understanding of economic theories even better. It has made my understanding of the market even stronger. We just don’t study economics anymore; we apply economics in every possible way. In my MBA life, I was able to turn my greatest fear into my biggest year. Maybe that’s why MBA’s are in such high demand.

Entry barriers by IPL and ISL in Sports Entertainment Industry

India as a country loves sports and glamour. We crave for them as a thirsty person in a desert. Earlier we Sports was different and Entertainment is different. But the gap between them is shortening every year. The reason behind this you might ask are IPL & ISL. The 2 flagship products that have combined entertainment and sports together.

IPL or the Indian Premier League was the innovator of the concept of Sports entertainment in India. In 2007 when Lalit Modi introduced this concept of combining cricket with entertainment, It was an instant success which brought a pool of revenue to BCCI and the franchises involved in the game. It is a Brand itself now. Every year 8 teams compete with the trophy and the cash price involve with it.

The similar model can be seen for ISL or Indian Super League. But, here the sport is not Cricket but Football. Though Football is the most popular sport in the world, In India it is cricket. Still, the event brings in a lot of revenue and viewership every season. The star power involved behind the clubs are a boost to cause of turning football into a sport which can be combined with entertainment.

Now the question is how are they restricting other new products to enter the market? Well IPL & ISL are big events in India. Every year the extravaganza returns with a bang and now they are flagship products. They have created a brand for their own. The power of these brands creates the difference that the consumers look for. This in Economic terms is known as Product Differentiation.

There are other products which are a new entrant into this market such as Pro Kabaddi League and Indian Premium Futsal. However, they are not in the same league as of IPL and ISL (no pun intended). Both of this products have a life cycle of 2 seasons at least still they are unable to create the impact like IPL & ISL. The most amount of revenue generated from the Sports entertainment sector is among the top 2 players. Their product has a huge brand value which creates the difference in the market. Today there are possibly many sports that can enter this market and become successful. However, as long as IPL & ISL are still the leaders of the market, there is a high barrier to entry into this market.

Income influences Demand

In an ever-changing world, the need for things will always be there. But can we afford it that is the question? Well, we can only buy things when we have the capability to buy it. Our income guides our buying trends. This is why it is an essential part of demand. Today the income level is high compared to the income level that our parents had. This led to the increase in the standard of living. Today we demand a lot of product but a lot of time we are restricted by the price of it. We wait till we can afford it, but most of the time we wait or wish for our income to increase.

Today in India we see people craving for Dominos and KFC. They are here for a long time. But the price charged was often out of hands for a lot of people during the time when it was launched in India. But today the scene is a complete change. Today a family can afford to get Dominos or KFC anytime they want as the income level of the consumers have increased massively over the period and now it is in the affordable range of the consumers.

Taking another Example India is a country of spices. We produce a huge variety and quantity of spices but some spices were not available in India before. Spices like oregano thyme lemongrass come from Italy and Vietnam. To export them before was a huge loss for companies like Keya as people won’t buy it cause the cost was high. But today every household in urban India has it. Why would you ask? It is because people have the income to buy the product now.

Thus we can say Income of a consumer influence the demand for a product.

Applied economics in Real Life

How the price of mobile phone drops to attract demand?

We have often come across this phenomenon when a new phone is being launched it is priced relatively high but after a period of like 2 months, we can see the price is reduced. What leads to such decisions is known as the law of demand.

The law of demand states that there is an inverse relationship between price and quantity demanded of a product. This means as price increases quantity demanded decreases and vice versa.

So if we examine the mobile phone market scenario we can clearly see this law being applied as the sellers are reducing their price to attract more quantity demand for the product. Since a certain time has also passed by the demand is affected. Thus, by reducing the price the seller creates interest among the buyers to buy the product

Why Reliance Jio providing Unlimited data?

Reliance Jio was a game changer in the telecom sector as in overnight it got a huge amount of subscribers. Jio provided free services for internet usage, voice calls, SMS services for over 6 months of existence. Now the question in all of our mind is why they chose this path?

The answer is simple they applied the utility concept of economics. Utility concept states the amount of satisfaction one derives from their consumption activity. By providing all its services for free Jio provided utility to its customers. As a customer myself I know that every individual wants to get the highest satisfaction possible by spending the least amount of money possible. Here Jio provided everything practically free of cost. It realised that want for satisfaction among its targeted customers and today it is the leading telecom brand in India.

Why today people like being ripped jeans rather than bellbottoms as seen earlier?

During the 70s we saw a huge demand for the bellbottom pants or trousers. It was so much in fashion everyone was seen wearing them. Look into your family album you might see your father in them. Don’t be shocked by his attire then compared to now. This is because the taste and preference of the buyer influence the demand for any commodity. During that time we could see a huge demand for bellbottoms as that was the taste back then

If you compare it with present well, we like ripped jeans no matter how costly it is. We can see a huge demand for ripped jeans now as the taste now is for that in the market. Hence our closets are filled with torn or ripped jeans which my mother cannot tolerate by the way. Now she cannot tolerate as her taste is different compared to mine. Hence, her taste guides her demand and so does mine.

Why you need to increase the labour force and introduce new machinery in order to increase output?

Suppose you are introducing a new product in the market what will be your main concern? Probably it will be how much quantity you want to produce. In order to produce you need various things such as raw material, capital, labour machinery, etc. a combination of this various factors is responsible for what is called the Production Function.

 The production function states that in order to produce a quantity of product you a possible combination of Labour(L) and Capital(K). In order to produce this new product, you will need a certain amount of capital for this instance machinery and labour force. With the combination of labour and capital, the desired quantity can be achieved.

Why we love participating in cultural programs of our college?

Here at IBA we participate in many cultural programs such as Guru Purnima, Independence day, Burning Bush cultural etc. but why do we do it. Do we do it because are passionate or emotional about it or are doing it cause of popularity and to show off the fact we are better than our counterparts? This phenomenon is known as Rational Behaviour.

Rational Behaviour refers to the fact we make decisions based on reasons rather than emotions. So whenever we are participating in a cultural event remember the fact we are rational. We have our various reasons for that decision which compels us to perform at the events.

How Economics works in an Incognito mode in our lives

Have you ever realized that Economics plays a vital role in our lives or that it exists in a very incognito way?

Well, I found about this through my economic class in my PGDM program. In my life to be exact economics plays a very important role. Mostly during when I go out to eat on a Saturday evening. Every Saturday my college mess remains closed for leaning purpose and everybody has to go out to get dinner. now the biggest dilemma that I have is what to eat that will fit my budget for that week. now a typical outing for dinner needs to have a bread or rice. I'm happy eating both be it a nun or a plate of biryani. With this, I form an  Indifference curve as I can have both or a combination of the 2 for my dinner.

An Indifference curve shows the various combination of two goods that provide the same level of satisfaction. So to find the same level of satisfaction I make choices every week on which combination of 2 to have for dinner.

Sometimes I substitute one nun for little more of biryani and sometimes I do the opposite. whatever the possible combination is I receive the same level of satisfaction.

Now every time I substitute a nun for more biryani I perform something called  Marginal Rate of Substitution(MRS). This indicates the rate at which I substitute one product for another to receive the same level of utility or satisfaction.
So now you know how economics reflects in
 my day to day life.

Economics in real life

Economics is everywhere if one has the vision to see it. Our lives are surrounded by various economics principals that result in our purchasing or selling behaviour. These economic principles are in use for a variety of reasons let's take a look at some of them and find out how are they applied in our real life.

1.  People face trade-off
There is nothing free in this world. To get something one must forego something in return. It is one of the hardest challenges any customer face while making a decision regarding a product.
For example:
Every day a commuter has to trade the luxury of a car for saving money and travel by bus.
Or
the luxury of sleep vs. attendance of a class in a college.

2.  People Respond to incentives
Have you ever came across a sales advertisement in a newspaper or TV showing huge discounts? this is known as incentives which lure customers to buy something by providing rewards. As human are very responsive to incentives such as price drop or buy one get one free(BOGOF). The principle behind this is called People Respond to incentives.
let's take some examples
The "Big billion day sale" is a campaign by Flipkart which offered various products for sale on their e-commerce website with huge discounts. This provided a great incentive to the consumers for purchasing items that they wanted.

"Sabse Sasata Din" is a campaign run by Big Bazar from 2006 where they provide massive discounts to attract customers. During 2006 when this campaign started there was a huge response from the customers as they achieved a sale figure of 30 Crore in a single day( source: "It happened in India" by Kishor Biyani)

3.Utility concept
Internet you can watch any amount of videos you want on Youtube. They have the largest collection of videos from segments of Education to Entertainment. You get entertained watching such videos which provide you with a certain level of satisfaction. This satisfaction that you acquire from watching videos is known as Utility.
Let's take another example
In Dominos they have an affordable segment called PizzaMania which is priced relatively less compared to their rest of the menu. Now when you consume a pizza from the PizzaMania segment you feel a certain level of satisfaction as the taste is also good and the price is relatively low.
 In economic terms, Utility means the satisfaction that a person acquires from their consumption activity.
There are some assumptions to this concept such as:
1. Taste and preference remain fixed which plays a major role in the decision making.
2. People allocate their income to maximise their satisfaction of total utility.
Some terms related to this concept
TU- Total Utility( total amount of satisfaction achieved)
MU- Marginal Utility( additional unit of satisfaction achieved for consumption of an extra unit of product)

4.The principle of Diminishing Marginal Utility
So but now you know what does Utility means. But, does the level of satisfaction remains the same?
Let's go ahead with the example of Youtube again. When you watch a trailer video of a movie on youtube for the first time you get excited about the movie, you enjoy the trailer and derive a certain level of satisfaction. But, the next time when you watch that video do you still feel the same level of satisfaction? By this time, you know what is in the trailer so your satisfaction falls down a little.
What is your satisfaction level when you eat your second pizza in Dominos? It's not like the first pizza you had. Right?
This phenomenon is known as the law of Diminishing Marginal Utility. As you consume more of a certain product your level of satisfaction decreases with the extra additional unit of product. You do not derive the same level of satisfaction that you did from the last video you watched or the last pizza you had.
Characteristics of Diminishing Marginal Utility
1.The more of a good that one obtains in a specific period of time, the less the additional utility derived from an additional unit of the good.
2. Utility diminishes over time- the shorter the time period, the more quickly the level of satisfaction of additional unit decreases
3. Consumers are not identical, so the rate at which such decline happens differs across consumers.

5. Rational Behaviour
A consumer is said to be rational when they make decisions based on reasons rather than emotions. this behavioural trait is what makes a consumer make a decision regarding buying a certain product or not. The rational behaviour of a consumer is seen is various scenarios such as:
People buying a fitness band just to check the steps they walk every day.
Purchasing of gold with the reason of it is a good investment.

Can you measure happiness? Economists say Yes!

Say, when you go to "Big Bazar" or "D-Mart" every month for a grocery shopping, you have an amount in your mind that you want to spend, let's take Rs. 2000 maximum. This means your objective will be to get maximum happiness or satisfaction from every rupee that you'll spend! But we know that happiness cannot be quantified or put into numerical terms. It's a feeling that can only be expressed. But interestingly, the concept of Utility in Economics tells you otherwise.

So, what is Utility?

Utility is the amount of satisfaction that you derive from the consumption of a product or service. For quantifying it, there is an abstract measure of satisfaction that people receive from a commodity, known as Util. Now, remember, a Util is an abstraction because it is something that doesn't exist in the real world (like an inch or pound). It is something in your mind representing one unit of satisfaction or happiness!

Moreover, the level of satisfaction for a particular product may vary from person to person as well as time-to-time. As per Prof. Hobson, “Utility is the ability of a good to satisfy a want”.

For Example - You love potato chips, so you assign 20 Utils as satisfaction from eating a packet of Potato chips but some other person may not be fond of it and get only 5 Utils of satisfaction. 

How do you measure that happiness (Utility)?

The example below shows two popular approaches to measure satisfaction derived from the consumption of a product. 

Byju's

Cardinal Utility lets you quantify Utility by giving absolute values to it (measured in Utils). Another example will be - when you buy something from Flipkart or Myntra, they send a feedback form to you after delivery to rate (quantify) their services to measure how satisfied you are. This refers to measuring the Cardinality of their services!

Another approach is the Ordinal Utility where the consumers don't assign numerical values for utility but ranks the products or services in terms of their preferences. One thing to note is that Ordinal Utility can be either derived independently or through Cardinal Ratings. Using the similar example, say, you prefer Myntra over Flipkart for shopping or Maruti over Chevrolet when choosing cars!

Credits:

https://study.com/academy/lesson/

https://www.economicshelp.org/blog/