RATIONALE PEOPLE THINK AT THE MARGIN; PART-1

INTRODUCTION

What is the most important aspect in the life of a human being? We are very well aware of the limited resources we possess and of the human instinct which tells us to gain the maximum satisfaction out of something. To gain maximum satisfaction from the limited resources which are present at the hand, Economists have introduced a concept of Thinking Rationally. So, let’s proceed.

In today’s rapidly growing world, Economists generally assume people to make decisions rationally and marginally. “Marginally” here refers to “peripheral”. Rational thinking is the process which involves systematic evaluation of how much gain can be acquired with the available opportunities. As we dwell deeper into economics, we may find out certain situations where, thinking rationally is required. This concept of economics plays a vital role in day-to- day life activities. Therefore, rational thinking is considered as one of the ten pillars of Economic Wisdom.

RATIONAL PEOPLE THINK AT THE MARGIN

To understand what thinking rationally means, we have provided a simple illustration below:

Let’s assume, you own a vegetable garden, which, produces around 2 kg of assorted vegetables at maximum. How much additional vegetables can you acquire from your garden? If working for extra 60 minutes in tilling, watering, soil shifting, cleaning provides you with an extra 1 kg of vegetables, then what would be your preference? We can say here that the marginal cost1 of producing 100g of extra vegetable is 6 minutes of your time. Let’s take another example. Say, that you have your final examinations in a month. It’s not like you will let go everything and study for whole 24 hours on the days, instead you may shorten your leisure time, eat your food in lesser time and devote that time in studying. This small compromise of time from your

1 It refers to the change in price whether increasing or decreasing in producing one additional unit or serving one more customer.

regular course of action is termed as marginal change2. We make decisions by keeping in mind the benefits and the costs.

Consider, for example, a fruit seller “A”. “A” sells two types of fruit, namely Bananas and Apples. He buys 10 kg each of both Bananas and Apples at the wholesale rate, costing him about ₹15 /- (A Kg bananas) and ₹50/- (A kg apples), which, he wishes to sell at the cost of

₹30/- and ₹100/- at the city square. By his misfortune, half of the apples which he bought were not of ₹50 per kg quality, let alone selling them at ₹100 per kg and earning profit. So here he has two options, either bear a straight-cut loss of ₹250 or sell the deteriorated apples at the price of ₹40 per kg, thus incurring a loss of only ₹50. If “A” chose the latter option, he is said to be thinking rationally at the margin.

All in all, this principle explains why airlines may sell tickets below average price and why people ought to drop college and pursue their interests.

2 A small change to the plannedcourse of action.

3 Image curiosity: https://www.clipartkey.com/search/seesaw/

Let’s consider an example –

Imagine a law graduate “Ergo”. Ergo has completed his BA LLB recently from a reputed law college. He is now confused about whether to start looking for a job or pursue LLM for further qualification enhancement and education enrichment. Consider that he has an offer on hand which will pay him ₹20 lacs per annum and the same company offers a package of ₹25 lacs to the ones with LLM degree. So, it will depend on Ergo that what does he finds more satisfactory. He may go for LLM or jump straight on the offer by calculating the marginal costs and benefits.

Individuals are not always rational. They may sometimes make economic decisions on the basis of experience and emotions, whereas on the other hand, Economists will see these decisions as irrational.

Aishwarya Says:

I have always been against Glorifying Over Work and therefore, in the year 2021, I have decided to launch this campaign “Balancing Life”and talk about this wrong practice, that we have been following since last few years. I will be talking to and interviewing around 1 lakh people in the coming 2021 and publish their interview regarding their opinion on glamourising Over Work.

If you are interested in participating in the same, do let me know.

Do follow me on FacebookTwitter  Youtube and Instagram.

The copyright of this Article belongs exclusively to Ms. Aishwarya Sandeep. Reproduction of the same, without permission will amount to Copyright Infringement. Appropriate Legal Action under the Indian Laws will be taken.

If you would also like to contribute to my website, then do share your articles or poems at adv.aishwaryasandeep@gmail.com

We also have a Facebook Group Restarter Moms for Mothers or Women who would like to rejoin their careers post a career break or women who are enterpreneurs.

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