Thursday, May 15, 2008

reverse mathematics.

For subjects such as calculus and astrophysics, one may find difficulty in directly applying academic lessons to everyday life. After all, when one goes to the market to buy apples, one does not calculate the rate of decay of the apples in minutes, t, which is a function of the temperature of the refrigerating device (k, for Kelvin), and the degree of light (a, for amperes). Nor does one attempt to postulate the nature of the universe from the act of apple picking in the fruits and vegetable section of Rustan’s.

But the same does not hold true for economics. Unlike other social sciences, economics affects us more deeply, more deeply than say, history or political science. As a consumer, one will not approach an apple thinking of the historical significance of apples in the Bible, or in Olympia or Troy. Nor does one imagine the countries exporting apples, and try to figure how the presidents of those countries affect the quality of the apples one is buying. Of course, these things could be important, but they do not merit discussion outside of the four walls of a classroom.

Economics, as people have learned early on, is all about money.

Money is nothing new for everybody. Money talks the talk, walks the walk. Money moves nations and murderers. Money buys bullets and money buys food. And as you stand on aisle 23 of your neighborhood supermarket, I am absolutely sure that you are rolling some form of microeconomic principle in your head.

Say that today is the eve of the new year, and the demand for apples is high because it is one of the twelve fruits you must have on the dinner table tonight, to ensure good luck for the coming months. (And thus, let us say that you are from a superstitious family, and the option of having only eleven fruits will mortify your mother and father). You realize that you still haven’t bought any, and so the need to buy apples presents itself to you.

Of course, because you are Asian, you are frugal. Or better yet, you are thrifty. You would like good luck for all twelve months of the coming year, and you would like to please the gods. But you also want to save up for the rainy days. So essentially, what you want is to have so much good luck in your household, and so much money left too.

Economists call this cost-minimization.

So your first major decision point comes. Which supermarket are you going to? There are two supermarkets on Katipunan Avenue selling apples—Rustan’s and Shoppersville. You have two things to consider, first of which is distance. From your house in Xavierville 2, Shoppersville is farther. Rustan’s however has more expensive fruits. You are not sure how much the apples will cost—after all, who is? But you’re sure that a tricycle ride to Shoppersville is nine pesos more expensive than one to Rustan’s. Double that number to factor in that you also have to come home. That’s eighteen pesos. You are also sure that you want to buy twelve apples—one for each month. Of course, one would not dare displease the apple gods or goddesses. One month is a long time to lug bad luck around, and your parents would not let you risk it.

And so you think to yourself: Will the cost of going farther outweigh the savings of more expensive apples? In short, will the additional eighteen pesos you’re spending for the ride still result in you spending less for the entire night? Is the amount you save more than the amount you’ll spend to ride to a farther place?

Your mother barges into your bedroom, and for forty-five frantic seconds tells you that the apples are missing and that you are to drop whatever you are doing at the moment, and take her two hundred pesos to go and buy some apples. She exits, and you now have a new problem.

You’ve only two hundred pesos to spend. You ask your friend, “Hey man, how much does an apple cost nowadays?” And your friend answers, “Thirty pesos apiece, give or take ten.” And you think that it’s a big difference, considering you are most certainly buying more than one apple with two hundred pesos. And so your first decision is made: Go to the place with the cheaper apples. By buying more than one apple, at least, you can be assured that your savings will equal the additional eighteen pesos it will take to get there. Apparently, the differences in apple prices are large, and by selecting a specific apple that will have the lowest cost, you will find yourself with the most apples, enough to keep the gods and you happy for the next year.

Your mother walking into the bedroom, that’s called a constraint. For economists, it would have been the two hundred pesos. For non-economists, it would have been an unwelcome demand during a time of supposed festivity. But since we’re talking about money, let’s call the constraint a budget constraint.

And so the problem has changed now. From wanting to know how you will have to pay the lowest amount for a specific amount of good luck, you now have to decide how to get the most amount of good luck for a specific amount. Economists call this utility maximization.

So what am I driving at here? Well, economics can sometimes be a study of the obvious. This especially applies to microeconomics, in particular. The way most of us decide what to do with our money can be so rote and routine sometimes, but this is not to say that what you learn when you take a microeconomics class is unimportant. Think of studying microeconomics as learning a foreign language to write your friend a love letter. When you learn the new words, and you attempt to express yourself in them, whatever it is that moves you to write does not get diluted just because it has been diced, shaped, and cut up into cubes of little words. The same thing applies in microeconomics—what you already know doesn’t lose its meaning when you realize that somewhere, someone has already thought of things, and worded them in that way. And it can even validate you somehow—that yes, you are a rational being. That yes, you are part of this world.

And lastly, don’t believe everything you hear. Not everything in economics is mathematical. It’s not so much as applying the math to the everyday life situations—it’s about knowing that math does actually govern those everyday life situations. You just didn’t realize it.

Now, go get those apples.

3 comments:

Anonymous said...

i'll be sure to get me some apples...hahahah..nice article

Anonymous said...

deep!

Unknown said...

economics as the study of the obvious... true true. sometimes, the most obvious things are the ones we fail to see!