In economics, the majority is always wrong – John Kenneth Galbraith
The first time I opened an Economics book, I had to put it down after reading the first two pages. This was when I was preparing for my CA Foundation exam, and Economics was notorious for bringing the most brilliant of students down on their knees (part of this can be blamed on the CA Institute itself, who has drafted such a drab module that even Amartya Sen would be challenged). Anyway, the next time I picked up the module was on the eve of the examination. Half an hour after grappling with it, I decided to call a friend of mine who topped the subject in school. He heard my problem and gave the usual smirk of the man who knows it all. The chap then proceeded to give a lecture on state finances and the forces of the market, the pros and cons of indirect taxation, and the various kinds of deficits and remedies for the same. “I give up”, I told him after fifteen minutes of patient listening on the other side of the phone. He found this funny, and told me to do it my way then. “It is not an easy subject”, he said, “but don’t give up”.
I had almost resigned to my fate, when I tried to read through what Micro Economics had to offer. The first 3-4 pages of the module were about the origin of the word, and how people had contributed to the body of knowledge over the years. Nothing interesting so far. Then, Micro economics proposed that if you raise the price of a commodity, there would be less demand for it. So, if you are selling 8 oranges for Rs 10 each, you would sell only 8 if you raise the price to Rs 12. That such a thing should be called a law, and taught to a person after he has walked the earth for twenty years seemed heresy to me. Somebody actually got world fame for this?
The next thing they had to say was something more subtle. If you increase the price of a commodity, its supply would increase. In the next few pages, the demand curves were moved up
Image via Wikipediaand down, sometimes the supply curve was superimposed on them, and sometimes they used it to calculate what they call price elasticity. Now price elasticity is nothing but how does the demand for a commodity change with respect to changes in price. To any man who has studied mathematics, this is simply dy/dx. I realised that people often earn a lot of money and fame in this world just by presenting simple facts in a complex manner. And if you can apply mathematics to any body of knowledge, you can go very far.
The next few pages talked about the Law of Diminishing Marginal Utility. You can go anywhere in India, and an Economics professor with always explain this by stating that the second Rasgulla/Gulabjamun that you consume, does not give as much pleasure as the first. This is all there is to this law. You can derive the corollaries intuitively. The final thing that Micro Economics had to offer was Law of Diminishing Marginal Returns. This, I agree, was something original, although partly derived from the Rasgulla law (the summary of the law is that as after a point, as you go on increasing an input (out of several) in a production process, the output per unit of input would go on decreasing progressively. So, say after 5 hours of work, every additional hour that a labourer puts in would yield lower returns, maybe because he’s getting tired. This law partly explains why Economics is called the dismal science, as after a point of time, the production of everything would reach its peak, while population would go on exploding.)
Anyway, I had a good understanding by now, and I managed to attempt about 60 marks out of 100 in the examination. I got 40-odd marks eventually, just close to passing. Later on in life, I had my encounter with Economics again, and I managed to get two A’s and one C. Very volatile I agree, but the C was in macro economics, which continues to be my Achilles Heel. The only comforting factor being that even Ben Bernanke does not seem to have got it correctly.
The first time I opened an Economics book, I had to put it down after reading the first two pages. This was when I was preparing for my CA Foundation exam, and Economics was notorious for bringing the most brilliant of students down on their knees (part of this can be blamed on the CA Institute itself, who has drafted such a drab module that even Amartya Sen would be challenged). Anyway, the next time I picked up the module was on the eve of the examination. Half an hour after grappling with it, I decided to call a friend of mine who topped the subject in school. He heard my problem and gave the usual smirk of the man who knows it all. The chap then proceeded to give a lecture on state finances and the forces of the market, the pros and cons of indirect taxation, and the various kinds of deficits and remedies for the same. “I give up”, I told him after fifteen minutes of patient listening on the other side of the phone. He found this funny, and told me to do it my way then. “It is not an easy subject”, he said, “but don’t give up”.
I had almost resigned to my fate, when I tried to read through what Micro Economics had to offer. The first 3-4 pages of the module were about the origin of the word, and how people had contributed to the body of knowledge over the years. Nothing interesting so far. Then, Micro economics proposed that if you raise the price of a commodity, there would be less demand for it. So, if you are selling 8 oranges for Rs 10 each, you would sell only 8 if you raise the price to Rs 12. That such a thing should be called a law, and taught to a person after he has walked the earth for twenty years seemed heresy to me. Somebody actually got world fame for this?
The next thing they had to say was something more subtle. If you increase the price of a commodity, its supply would increase. In the next few pages, the demand curves were moved up
Image via Wikipediaand down, sometimes the supply curve was superimposed on them, and sometimes they used it to calculate what they call price elasticity. Now price elasticity is nothing but how does the demand for a commodity change with respect to changes in price. To any man who has studied mathematics, this is simply dy/dx. I realised that people often earn a lot of money and fame in this world just by presenting simple facts in a complex manner. And if you can apply mathematics to any body of knowledge, you can go very far.The next few pages talked about the Law of Diminishing Marginal Utility. You can go anywhere in India, and an Economics professor with always explain this by stating that the second Rasgulla/Gulabjamun that you consume, does not give as much pleasure as the first. This is all there is to this law. You can derive the corollaries intuitively. The final thing that Micro Economics had to offer was Law of Diminishing Marginal Returns. This, I agree, was something original, although partly derived from the Rasgulla law (the summary of the law is that as after a point, as you go on increasing an input (out of several) in a production process, the output per unit of input would go on decreasing progressively. So, say after 5 hours of work, every additional hour that a labourer puts in would yield lower returns, maybe because he’s getting tired. This law partly explains why Economics is called the dismal science, as after a point of time, the production of everything would reach its peak, while population would go on exploding.)
Anyway, I had a good understanding by now, and I managed to attempt about 60 marks out of 100 in the examination. I got 40-odd marks eventually, just close to passing. Later on in life, I had my encounter with Economics again, and I managed to get two A’s and one C. Very volatile I agree, but the C was in macro economics, which continues to be my Achilles Heel. The only comforting factor being that even Ben Bernanke does not seem to have got it correctly.
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