Stanford Minimalist Economics —— Microeconomics in Our Life

Economics, which scares most people, is the most common part of our life, because it is so familiar, and we just ignore it automatically.

But ignoring it doesn't mean it doesn't control our lives.

Stanford minimalist economics, how to weigh the gains and losses decisively, is an enlightening book for us to understand easily and help us understand the complex economic operation. Here, we can not only understand the thinking logic behind economists' economic decisions, but more importantly, through learning, we can also weigh our own gains and losses decisively in the constraints and opportunities of daily life.

Timothy Taylor, the author of this book, explained 36 economic concepts in simple terms. Due to the limited space, I understand this book in two parts. The first part, microeconomics, finds out several most common economic phenomena and sees how economic behavior closely affects our lives.

We know that all economic theories, economic systems and social foundations are based on three basic economic problems:

1. What should society produce?

2. How to produce?

3. Who will consume what is produced?

It is precisely because of the existence of these three problems that there will be many endless quarrels in the economic field.

Regarding the supply-side reform in China, I have heard two diametrically opposite views, one is Zhang. For a while, you came to an article and I came to an article opposite. Although the debate is fierce, no one has convinced anyone whether the government should supervise it.

It was their quarrel that made me understand many things behind economics. Looking for nutrition from opposing viewpoints is the interesting part of studying economics.

Here, there must be readers who want to ask me: "Since you find it interesting, are they right or wrong, Fiona Fang? What do you think?"

My answer is: "They are all right, and none of them is right".

Isn't that shameful? All the routines of muddling along and fooling people.

But studying economics makes us speechless-we know too much, but we still can't live a good life.

Everything has its two sides, but this two sides is more typical in economics. Whether it is macro-control or free market, it will involve the problem of "weighing trade-offs". No policy can benefit everyone. The characteristic of economic policy is that it can not only help some people, but also hurt some people.

There is also an economic concept: opportunity cost. When you make a choice in a specific time and space, it means that you must give up some other choices, and the highest value of those abandoned choices is the opportunity cost you pay.

I thought of Charles Munger's wisdom. Because economics studies complex and dynamic social phenomena, some ways of thinking or angles are special and counterintuitive. Economic models can't solve problems, but economic thinking can. This method is to synthesize the thinking modes of different disciplines and weigh all the opportunity costs. The rational choice is that the comprehensive income is greater than the comprehensive cost.

It seems that Fitzgerald's golden sentence is once again extremely correct: "Wisdom is the ability to keep two completely different ideas in your mind and still act normally."

The principle of comparative advantage is one of the most rock-solid basic principles in economics, because everyone's energy, time, endowment or resources (which can be applied to families, organizations, regions, countries and other units) are always limited, and no one in this society can satisfy himself by himself. He can only concentrate on producing the kind of products that he has comparative advantages and create the greatest value for the society, so that everyone's greatest value can be accumulated and the wealth of this society is the most. Then everyone improves their situation through exchange.

This is the essence of commodity economy.

The originator of economics has long understood win-win thinking. Look at Adam Smith's most vivid description in The Wealth of Nations:

In this way, if they work hard and finish the whole day, they can make 12 pounds of pins, which is equivalent to 4800 pins per person.

In fact, each of us enjoys the benefits of division of labor and cooperation every day.

I'm sitting in my office with the light on. There are a series of power plants and power grids, drinking hot water provided by the property. Looking around, everything in front of me, such as paper, pens, computers, cups, tables, sofas, bookcases, including posters on the wall, was not made by me. All I need to do is to be full of ideas and exchange my ideas or my intellectual services for value, which makes me full of energy, because I especially hope that all this will still accompany me tomorrow.

In the eyes of economists, this is the world. Division of labor leads to the exchange of goods and services, and society must coordinate all production and consumption in some way.

How to adjust? Let Adam Smith say:

This invisible hand is the price mechanism.

When it comes to price, there are three concepts to make clear to everyone, because these three concepts are most likely to cause confusion.

Use value: Generally speaking, what is the use of this product for me? It gave me functional needs and met some people's needs.

Value: refers to the general equivalence between commodities, and generally refers to abstract labor condensed in products. Simply put, under the current social production level, if an average labor force can produce three socks or a hat a day, of course, this is only an idealized concept of various cost factors. Then the value of three socks is equal to a hat. Value solves the possibility of commodity exchange.

Price: it is the monetary expression of price, but in real life, price often cannot truly reflect value.

The allocation of these resources, the production of commodities and the exchange of commodities are all economic behaviors, and the market dynamically adjusts economic behaviors through prices. Although there is no guarantee of absolute fairness, it is definitely to shift the allocation of resources to a more efficient direction, because there is a basic assumption, whether it is products or services, the most willing to pay is definitely the most efficient.

Price is a particularly sensitive signal, which always transmits the scarcity signal to the stakeholders in need in the most direct, thrifty and effective way to guide production and distribution.

The price is not entirely based on cost, and the specific price adjustment principle has three laws:

The first law of demand: whenever and wherever the price rises, the demand for goods will decrease, and when the price drops to a certain extent, the demand will increase.

The second law of demand: with the passage of time, the elasticity of demand to price will increase. The so-called elasticity is the change of the percentage of demand relative to the percentage of price change. It means that if the price changes by one percent, the demand will change by several percent.

Law of supply: On the supply side, on the contrary, when the price rises, the supply increases, and vice versa.

This relationship is shown in the figure below.

D is the demand curve, which inclines downward, and S is the supply curve, which inclines upward. The n point where these two curves intersect is the equilibrium point.

It can be seen that the price of goods is determined by the market, not the supplier.

If the price of goods is higher than the equilibrium point, it means that the supply of goods is greater than the demand, and there will be unsalable sales. In order to reduce inventory, merchants will reduce prices and prices will move to the equilibrium point. If the price of a commodity falls below the equilibrium point, then the demand is greater than the supply, and people tend to snap up this commodity, and the supply will increase the price, so that the demand will decrease, the supply will increase, and the supply and demand will be equal again, reaching a new equilibrium point.

Of course, this equilibrium is a dynamic equilibrium, and N points are always in the fluctuation of prices, constantly shifting from left to right, which is relatively balanced.

In addition to the law of supply and demand, there is another adjustment mechanism for price determination, that is, the competitive state-whether the goods produced by merchants are in an ideal competitive state or an unsatisfactory competitive state. There are four economic concepts here: perfect competition, monopoly competition, oligopoly and monopoly.

We generally think that the ideal competitive state is perfect competitive state. In fact, this state rarely exists. Let's think about it. In the state of perfect competition, any buyer and any seller in the market can enter or exit the market at any time, and market information is completely circulated. Everyone knows what they want to buy and sell, and the transaction cost of the whole market is very low. There is no bargaining process and no cheating.

Perhaps the most typical example is the stock market. Every stock in the stock market is completely homogeneous and has the same price. If you set the price higher, you can't sell it. If it is lower, it will sell well. They can only passively accept the market price, that is, the price recipient.

But in real life, a large number of occasions are in a state of imperfect competition. The same product, there are still great differences between different brands, with different quality, different styles and different functional emphases. Competition is a process in which commodity producers pursue better, cheaper and more differentiated products. Because there are still obvious differences between the products of each seller, buyers can't switch freely between the products sold by different sellers.

The most extreme situation among price seekers is complete monopoly, in which a single seller owns all or most of the income in a specific market. For example, from the end of 20th century to the beginning of 20th century, Microsoft dominated the market of computer operating system.

The characteristics of monopoly market are: firstly, enterprises can't enter and exit freely; Secondly, monopoly enterprises have pricing power and can earn higher profits.

But there is also such a paradox in the competition. The original intention is a hundred schools of thought contend, but the result of full competition is to go to monopoly. Because competition is efficiency competition, there are winners and losers, and people like excellent products, which is doomed to increase the market share of this product. In the end, 1-2 enterprises dominated the competition, and the rivers and lakes were turbulent, only recognizing the boss.

Is this monopoly a kind of destruction to the competition mechanism?

In fact, monopoly does not mean doing whatever you want.

Since an enterprise can be unique, it must have the best quality and service, which can best meet the extreme pain points of consumers. The process of their continuous growth is the process of resource accumulation and technological innovation. Their existence did not harm consumers, but brought more benefits, better services and lower costs to consumers, and created a new era.

American Standard Oil Company, Apple Company, Microsoft Company, Alibaba Company and Tencent Company are such enterprises that have grown up. These enterprises are undoubtedly monopolists in the market, but we can't see that any of them can lie on the credit book and make huge profits, which is more manifested as anxiety beyond things.

Leadership is the hardest. Innovation is mine, and reproduction is others'.

This is a more three-dimensional era, and cross-border robberies abound. At no time should we underestimate human imagination.

Monopoly may be established in a short time. In a long time dimension, the business model is constantly breaking through, and the prospect of technological innovation is infinite. Even the most powerful species can't dominate the whole environment as long as they don't rudely restrict industry access in the form of state machinery.

We should protect competition, not competitors.

In the market economy environment, free competition does have many advantages, for example, it urges enterprises to produce better goods at lower prices. But at the same time, free competition also has many disadvantages. In some special fields, the market can not play a regulatory role, and government intervention is very necessary.

For example, for some areas related to the national economy and people's livelihood, national security, public services or infrastructure, such as fuel, water, electricity, gas, medical care, education, transportation, municipal construction and so on. These fields are generally monopolistic, asymmetric or unprofitable. If the prices of these goods and services are not controlled or invested by the government, sellers will raise prices at will or no entrepreneurs are willing to intervene at all, which will not only lead to the increase of the operating cost of the whole society, but also affect the economic development of a country or region. Will also affect people's livelihood.

Therefore, proper government regulation is an effective means to reduce the total social cost, but it cannot be abused.

Economists have given the government a very suitable role-the night watchman.

Borrow a passage from American writer J.D. Salinger in Good Girl:

"I"-What an appropriate role the government has played. It is enough to be a catcher in the rye, stay there faithfully and not let any enterprise fall off the cliff.