This weekend I found that demand plays a huge part in my life. I have a very large demand for a flight to Boston. I also have a very large demand for a new alarm clock.
On Saturday I kinda sorta slept in. Usually this isn't a problem, but it was when I had a flight that left 2 and half hours before I woke up.
I realized that I had a huge demand for a plane ticket and was willing and able to pay for it up to a certain price while I sacrifice some cash. I had a lengthy phone call with my parents. At first my parents said don't bother because you would be paying for a ticket on top of the other ticket I wasted. I explained that I already had a sunken cost of the first plane ticket and that should be ignored and that the benefits of me coming home outweighed the cost of the money of the second ticket. I was on standby and magically got home.
I really wanted to go home and I had a huge demand to go home. However, other people in Rochester didn't have such a demand - proving demand is subjective - and I was able to get that last minute seat.
I also found that I have a huge demand (more of a necessity) for a new alarm clock. I went online (Amazon - my favorite middleman) and bought an alarm clock that shakes my bed. I was willing to sacrifice the cost of it because the benefits of me waking up for class, tests, more planes, will forever be worth it. My demand is really high up to a particular outrageous price. I lacked this alarm clock for so long because I never really had a reason to get it - now I had a reason. There was the transaction cost of me formerly not needing the earthquake alarm clock and that I don't have a car as a freshman in college. But because of the middleman of Amazon, the transaction costs were lowered and the trade occurred and both parties benefited - company gets $, I wake up.
Lessons - Don't sleep in and miss flights home. But if you do, make sure you live in Rochester because there is very little demand for flights compared to say JFK airport.
Showing posts with label sunken costs. Show all posts
Showing posts with label sunken costs. Show all posts
Saturday, November 5, 2011
Saturday, October 8, 2011
Class 16 - Is the Titanic a Sunken Cost?
Today we talked about the margin. The margin is a little bit more or less.
The phrase "Cassie is unselfish" means nothing. It causes the listener to compare it too what we believe is an unselfish person. Someone who knows a saint might believe that Cassie is basically God while someone from a bad neighborhood might believe that Cassie is just someone who won't mug them.
Bruce doesn't release an album every day and men don't say I love you because when they do, the value is so great at the margin. (marginal value).
For example: teachers (water) vs athletes (diamonds).
The skills for athletes are more scarce so at the margin we value athletes more. If 200 of each group disappeared, the athlete group would be more affected (maybe lockouts would happen....) But if there's none of each group, the teachers matter more. Or if there's one of each - we want that teacher more. The total value of the teachers out ways the athletes.
This is why we pay the worker making drugs more than the worker making a bouncy ball even though they might be doing the same work. The skills for the drug guy are more scarce so we value him at the margin.
Then we talked about how oil isn't a resource, but its function is. Like how people pay money for water when it's "free". We pay for the function of having water on the go.
Then we talked about sunken costs - the opposite of marginal costs. No matter how we change our decisions, these costs don't change. They are costs from the past - they are sunk. For example: if Rochester ended the football program, the mortgage on the stadium is a sunken cost - it's already spent, in the past. But scholarships and tickets would be a marginal cost.
Then there's the law of unintended consequences. Seen through seat belts in cars, yes we do save lives but what has happened? People speed more, the cost of driving badly has decreased. The accidents have increased but they are now safer accidents. But who suffers? The pedestrians.
The phrase "Cassie is unselfish" means nothing. It causes the listener to compare it too what we believe is an unselfish person. Someone who knows a saint might believe that Cassie is basically God while someone from a bad neighborhood might believe that Cassie is just someone who won't mug them.
Bruce doesn't release an album every day and men don't say I love you because when they do, the value is so great at the margin. (marginal value).
For example: teachers (water) vs athletes (diamonds).
The skills for athletes are more scarce so at the margin we value athletes more. If 200 of each group disappeared, the athlete group would be more affected (maybe lockouts would happen....) But if there's none of each group, the teachers matter more. Or if there's one of each - we want that teacher more. The total value of the teachers out ways the athletes.
This is why we pay the worker making drugs more than the worker making a bouncy ball even though they might be doing the same work. The skills for the drug guy are more scarce so we value him at the margin.
Then we talked about how oil isn't a resource, but its function is. Like how people pay money for water when it's "free". We pay for the function of having water on the go.
Then we talked about sunken costs - the opposite of marginal costs. No matter how we change our decisions, these costs don't change. They are costs from the past - they are sunk. For example: if Rochester ended the football program, the mortgage on the stadium is a sunken cost - it's already spent, in the past. But scholarships and tickets would be a marginal cost.
Then there's the law of unintended consequences. Seen through seat belts in cars, yes we do save lives but what has happened? People speed more, the cost of driving badly has decreased. The accidents have increased but they are now safer accidents. But who suffers? The pedestrians.
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