Size does matter

While we were rushing to make the last deadline for our Microeconomics paper, little Miss Havaianas was rushing to the hospital - to give birth to a little boy. In our MBA micro-world this is a macro thing to happen and we are all very happy to hear that mother and eMBAby are doing well. Guess that Miss Havaianas will from now on be the person to talk to if you want to find out more about the price elasticity of diapers, baby milk and other baby-related products.   This price elasticity (of demand) is a major concept in microeconomics.  It explains how demand will react whenever prices increase or decrease and is mainly determined by factors such as the availability of substitutes, necessity and income.  Take gasoline for example which has a price elasticity of - 0.26: in layman's language this means that if gasoline prices were to be increased with 10%, the demand will drop by 2,6%.  There are of course substitutes such as public transport or cycling but if you are all day out on the road this does not really help.  The trick to understand elasticity is simple, the closer the figure is to zero, the more inelastic demand is (read the less sensible it is to price changes). 

Microeconomics also help you to understand how pricing is done for a given product or service in a given market structure. Obviously, price setting is different when you are in a market structure of monopoly, oligopoly, perfect competition or monopolistic competition. I learned that price discrimination, bundling, damaged goods are typical strategies of the monopolist whereas companies in perfect competition are price takers instead of price setters.  Although all this might sound boring I was very much into the subject. Part of it can be explained by the fact that I just read Superfreakonomics and although this book had quite a different perspective on the matter (no mention of terrorists in the course) it makes me want to dig deeper.   

Once again, this course has been a very relevant building block (all credits to our teacher Jan Bouckaert) - not only for my professional resume but also for my personal curriculum.  Perhaps I will never be involved in price setting (but then again, Buddha walks in mysterious ways) but it doesn't matter. What matters is that I am on a personal discovery journey and start to see things differently.