This book is intended for all those who are willing to learn about economics in a fun way. This book retains the basic study of economics along with the updated information to lay out a strong foundation. In contrast with the typical textbook-driven curriculum for school economics, the book uses a fun yet strategically planned approach to teaching the fundamentals of economics.
1. COMMON SENSE VOL - 1 Ezee Pez Skills ee for SMART KIDS A Practical Guide
2. Economics Common Sense for Smart Kids Economics Common Sense for Smart Kids (Vol-I) Ezee Pezee Skills for 21st Century
3. Preface If we are going to carry on growing, and we will, because no country is going to forfeit its right to economic growth, we have to find a way of doing it sustainably. – Tony Blair Authored By: Anup Pandey Surely enough, there is economic growth but how to understand the critical terms of economics in a simple way so that it becomes easier for you to be the Anup asserts the moral right to be identified young economist. This book is intended for all those who are willing to learn as the author of this work. about economics in a fun way. Now the question arises: Why should you read this book? All rights reserved You should read this book if you: • Would like to learn how the economics of our day to day life works. • Are interested in becoming an effective economist right from the beginning. • Feel it is important to learn how to manage your money for the benefits in the long run. This book retains the basic study of economics along with the updated information to lay out a strong foundation. In contrast with the typical textbook driven curriculum for school economics, the book uses a fun yet strategically planned approach to teach the fundamentals of economics. The book has been designed and written in an engaging way to ensure that the reader feels connected with everyday life examples given in the book. By means of different stories and examples students learn to contextualize, understand reason and come out with solutions to various scenarios and problems given in the book.
4. • Why should I read about economics? • How is need different from want? • How can I always be prepared for any economic issue I encounter in my life? These are some of the very basic questions addressed in this edition and definitely in an amusing way. Contents In addition to learning new skills, the lessons learned in this book are likely to make economics more enjoyable, building on strengths and bringing out best in students. Chapter 1 Your Wish Is My Command 1 Chapter 2 Needs and Wants Around us 12 Chapter 3 The Real Thing? 25 Chapter 4 Free Lunch! 42 Chapter 5 Waxman, The Superhero 54 Chapter 6 Barter 69 Chapter 7 My Friend Thaler 78 Chapter 8 Give Me The Change 91 Chapter 9 My Demand is... 99 Chapter 10 One Plate Samosa 106
5. Chapter 1 Your Wish Is My Command “All you need is love. But the desire for a little chocolate now and then doesn’t hurt.” – Charles M. Schulz Friends, Welcome to the world of economics. Relax, this is going to be fun. Moreover, when I myself read the economics textbooks prescribed during graduation and post-graduation, how can I suggest one to you? I have tried to understand economics with my daily life observations, economics dictionary, and some of my experiences with known and unknown people. Let’s see, if it is of any help to you. Since the day I started getting my pocket money during childhood, I really don’t remember if I could save any. In fact, I would buy stuff on that very day itself and for the rest of the days in that month, I would live hand-to-mouth. My mother was very particular about the amount she used to give me as my pocket money and would never give any extra money. Is the case same with you guys Well, things did not change for me even when I got my first job. From the day my salary used to hit my account to the end of the same week, money would vanish from my account like a fart in the wind. Rest of the days I would spend money by borrowing from mother, relatives or friends. My mother was still very particular about the amount of money she gave. By then, she knew that giving me more money would not do any good. 1
6. Yo u r W i s h I s M y C o m m a n d Economics Common Sense for Smart Kids You know what! I understood what was wrong with me when Tia, my younger My Need or Want! sister had joined me to complete her studies. She was very well organised and Needs and Wants! Yeah, I had read about them in our economics textbook managed at the age of 18. I was very much impressed to see how well she long time ago. I don’t exactly remember why it was taught to us though I still managed her life, especially her finances. So I gave it a thought and eventually remember the basic meaning of it. One thing I have realised with time is, decided to learn it from her. The first thing she helped me with was to: though we gain a lot of knowledge from our books, but until we apply them in • Differentiate between my needs and wants. our real life, that knowledge is good for nothing. • Identify how my needs and wants are fulfilled. I believe, there is no age limit to learn. It is all about learning at every stage “Classic” a book which people praise but don’t read – Mark of life and gaining more knowledge. Twain Now, let me share some events of my life with you. Event 1. The first time I met Sara at a Christmas party held by a friend I fell for her in that moment .She was looking extremely gorgeous and out of the world. It was definitely love at first sight. It was another friend’s party where I met her the second time and I took no time to decide that she would be my life partner. I thought of proposing her very soon. I was running out of patience. My mother was anyway looking out for a good match for me. I had become an eligible bachelor by then. But before proposing her, I shared my feelings for Sara with Tia. “Have you ever been in love? Horrible isn’t it? It makes you so vulnerable. It opens your chest and it opens up your heart and it means that someone can get inside you and mess you up.” – Neil Gaiman “You need time brother, to know her well. Don’t be impulsive.” She suggested. Mark Twain, a famous But I had something else in mind. I was highly impressed with Sara’s American author and beauty and attitude. She was the right person to be my better-half. I wanted humorist once said – “I to gift something really expensive to impress her and show that I was the best was gratified to be able choice as a life partner for her. So I bought a solitaire ring. I borrowed money to answer promptly, and from my friends to buy it. I did. I said I didn’t In our third meeting, I proposed her with a solitaire ring. It was a big know.” surprise for her and for me too. She accepted the ring, showed me the dreams of a happy married life as well and never showed me her face again. Boy! She ran away with that solitaire ring. I could trace her nowhere. I was emotionally and financially shattered. 2 3
7. Yo u r W i s h I s M y C o m m a n d Economics Common Sense for Smart Kids Conclusion: My Want of gifting a solitaire ring to impress her left me financially and emotionally drenched. Had I analysed my want before acting on that situation, I would have taken a right decision and could have saved that extra expense. The need was to spend time with her and to know her well before gifting a solitaire ring. Event 2. I had to go Anchorage, Alaska during late September. Mother had called up to say that I would need lots of woollens and heavy jackets, so I should buy them. But you know what I did? I wanted to keep myself light. September is counted as summer in Delhi. So, I packed 3 or 4 Bermudas, 2 T-shirts, a jacket, 2 cargo pants, and a pair of warmer. Rest you can imagine what must have happened when I landed at the Ted Stevens International airport. Conclusion: The need was to take woollen clothes I guess never. Be honest dude. keeping Alaska’s weather in mind. But I carried light clothes. Had I analysed my need seriously before leaving for Alaska, I would not have fallen sick and spent extra money on buying woollens from Anchorage. Do you realise that you are more aware of or closer to the word Want than Hence, these two events of my life were the other word ‘Need’? It is really interesting to think about. Let us look at a enough to tell me that we need to apply our scenario to understand these words better. knowledge in real life too. The words, Need David and Emma are siblings. They do not and Want are just not English words. There come from a rich family. Emma loves is a deeper economic meaning behind to play Guitar and attends the them. By economic, I mean where money guitar class religiously. She transaction (Give and Take) is involved. has participated in a Guitar By the way, are you...kind of... confused competition where she has with these words, Need and Want? Never paid to give a solo performance. attention? Or maybe you thought, they are just the She wants to become a same? Never mind... good guitarist one day. David has no interest in Okay ...just think about it... how many times have music. However, he wants you spoken the word Want today? Once? Twice? Or may be to have the guitar to show- many times? If you haven’t, then, how many times have you off among his friends. He thought about the word Want? thinks carrying a guitar Let me guess… may be early morning when you woke up or may looks cool. One day, they be while having your breakfast. Some of you might have used it had a serious fight over while wearing your school uniform. Now, what about the other the guitar. Emma wanted word? How many times for the Need? to practise the guitar for her 4
8. Economics Common Sense for Smart Kids performance and David “You guys are giving me a hard time. For God’s sake, just wanted to hang out stop all this. Emma stop crying and David you...you better with friends, with stop shouting” the guitar on his back. In that fight, the strings of the guitar broke down. David walked out of the house in fury and Emma started crying. She had her competition the very next day. In the evening, when their father returned from work, both of them demanded guitars individually. He got really worried because he could not afford to buy two guitars. God! David wanted to impress his friends with a guitar! What on earth made him do this??? So fake…huh! So, I hope, by now, you have some idea about need and want from Emma and David’s story. Guitar was Emma’s need and David’s want. What Do Want and Need Mean? Want means wishing for something extra. It is a desire, a desire which could misguide you and without which your life can actually keep going smoothly. For example, the guitar was David’s desire to have a cool look. Need means an urgent requirement, without which it is difficult to survive. The guitar was Emma’s need to become a guitarist, wearing clothes is our need, a glass of milk a day is a need for good health etc. You cannot ignore these needs. Tag it buddy. We can ignore our Want but not our Need. Want also leads to an extra spending but Need leads to a real and smart spending. One should always look for need. Whenever you want something, think for a moment and ask yourself whether you really need it or not? We often mistake our wants for our needs for example a want to have a bottle of cold drink instead of milk. By the way, do you know, our want could be someone’s need? 6
9. Yo u r W i s h I s M y C o m m a n d Economics Common Sense for Smart Kids Well, now I value things that I buy because I am How are our Needs and Wants able to judge their importance in my life. I am no fulfilled? more a spendthrift. I don’t borrow money from my “Chris: I don’t know why it is, but every friends to fulfil my wants. I am able to save money time I reach out for something I and I am at peace in my life. I have stopped being want, I have to pull back because impulsive as well. other people will suffer.”- Arthur I also use these words Need and Want to analyse Miller I really thank Tia for introducing the concept of Need and Want in my life. Now, I know how to differentiate between my needs and wants. But to live and survive in this world, I needed a broader picture.Yeah! I am talking about our neighbourhood. It is our neighbourhood from where our life begins. Our needs and wants are fulfilled immediately from our neighbourhood. Often our wants are also fulfilled from our neighbourhood. We buy our daily needs like vegetables, fruits, milk, and other groceries from our neighbouring shops. For example, Mr. Gupta wanted to gift a gold necklace to his wife on their wedding anniversary. He bought it from the neighbouring Jewellery shop located at the corner of our local market. If you observe closely, you will see that your want could be somebody’s need or vice versa. There is a very strong relationship between needs and wants of people. Let me tell you a small case-story. real life situations. These words also help in taking right decision in life. You Long time ago, in the 19th century, there lived Joseph will learn about the facts to develop good decision making skills in another Wilson Swan in a small town, named Sunderland in England. series of the book. He spent his childhood in the shades of oil lamps. There “Too many people spend money they earned to buy things they don’t want but to were no electric bulbs at that time. Life was a bit tough under impress people they don’t like”– Will Rogers those oil lamps with black smoke emerging out and smell of oil. 8 9
10. Yo u r W i s h I s M y C o m m a n d Economics Common Sense for Smart Kids Joseph William was a very brilliant student in his class. Physics was his favourite subject. He wanted to see his house beyond the lights of Soooo...the point is the oil lamps. His utmost want for a better 1. Analyse the things before you buy it. source of light that would enlighten his 2. Before going to market, prepare a list of things that you need house, led to innovation. He started to buy. with several experiments. These 3. When you are high on impulse to buy a thing, simply put that experiments involved materials that thing aside and divert your mind to something else. were expensive like carbon filament, Grove’s cell battery and other laboratory items and chemicals. He spent a lot of money for these Finally, in 1860 he successfully constructed an electric bulb with a carbon filament. Thus, all of us now live under the glowing electric bulb once the sunlight is gone. An electric bulb has become the utmost need of our life. “Dreamers are mocked as impractical. The truth is they are the most practical, as their innovations lead to progress and a better way of life for all of us. ” – Robin. S. Sharma So, Sir. Joseph Wilson Swan’s want was everybody’s need. Isn’t that quite interesting? I never thought about these facts deeply ever before. Knowing your needs and wants and how they are fulfilled will certainly simplify your life. Also the fact that our want can lead to a wonderful innovation and can become somebody’s need is also very exciting. Who knows, there is an innovator reading this book. 10 11
11. Economics Common Sense for Smart Kids Chapter 2 Needs and Wants Around Us “The world as we have created is a process of our thinking. It cannot be changed without changing our thinking.” — Albert Einstein I am dying to flaunt it. Whom should I call up to brag about my Solitaire? Well said, Sir. Einstein. I too agree with this. To think, is the most powerful weapon for evolution. We must think about what we do, how we do, what we • How our needs and wants are fulfilled by companies? want, and why we want. • How our needs and wants are fulfilled by countries? I will tell you what happened few days back. Tia wanted a car and this desire • How our wants affect the planet Earth? was actually influenced by her friends. She goes to a well reputed college in New Delhi, India. Her friends have their own cars. Most of them drive cars, so she too wants it. By the way, she already has a scooty that she drives. But she is not satisfied with it. On the other hand, I recently got promoted as the Product Manager in my company. I needed a car as I have to travel a lot for my professional meetings. Here, Tia’s want was my need. Anyway, I bought the car for myself. I seldom give it to her because she wants it only to flaunt. Flaunting is a bad business for Okay wait! When I told you how our needs and wants are met by our neighbouring shops, did an urge to know about the broader picture come to your mind? Relation between Needs and Wants of People: Okay, Okay I know the answer, it did. Never mind. Well, let me tell you: Mr. Joseph wants to buy a diamond ring for his son’s engagement ceremony. Mr. Peterson wants to become rich. So, he opens a Peterson Jewellery showroom. 12 13
12. Book Title Mr. Joseph visits the Peterson Jewellery showroom and buys a diamond ring of worth $ 800. His would be daughter-in-law is very happy with the beauty of this diamond ring. On the other hand, Mr. Peterson’s kitty gets an addition of $ 800. His want of getting rich is fulfilled partially. Thus, you see that how Mr. Joseph’s want fulfilled Mr. Peterson’s want. Let’s look at another scenario on the same context. John wants to clean his shoes before going to school. He is caught everyday in the school assembly because of his dirty shoes. His friends laugh at him very often. What does he need to clean his shoes? Yes, shoe brush and the right person for a shoe brush is the cobbler. A cobbler needs money to fulfil his daily needs. He is not rich. He earns money by shoe polishing and stitching torn shoes of his customers. John goes to a cobbler and gets his shoes polished every alternate day after school. He pays $ 10 to the cobbler. $ 10 that the cobbler earns everyday through John, fulfils his needs to live. Thus, you saw that how John’s want fulfilled that cobbler’s need. Now you already know that we have endless needs and wants. But have you ever thought who fulfils our needs and wants? There is a deep relation between wants and needs of different people. Your 15
13. N e e d s a n d Wa n t s A r o u n d U s Economics Common Sense for Smart Kids want or need could meet somebody’s want. At the same time, your want or Apart from this you will also NOT find as many Audi, BMW, Toyota or need could meet somebody’s need. Jewellery showrooms as compared to apparel, shoes, or grocery shops would be in any market. What is the reason behind it? Who fulfils our Wants and Needs? Companies produce and sell items or provide services that people want and I learnt something very interesting when I went to a supermarket to buy need. Their main goal is to earn money. monthly groceries. As Tia had topped her class in the 1st year of her graduation Can you name the company that makes Bournvita or your favourite health with Economics Honours, so I wanted to give her a gold bracelet as a gift. But drink? Or can you name the company that makes the pen that you use? Or can to my surprise, I could not see any jewellery desk at that supermarket. All I you name the airline on which you flew for a holiday recently? could see was items for daily needs. When I inquired about jewellery from a Most of the companies make and sell items that people need in order to sales executive, he gave me an address of a jewellery showroom that was very earn quick money by reaching out to the masses. As every person has needs, far. Now that’s something worth thinking about. so the demand for such items is huge. Since the demand is huge, the cost Do you ever notice? becomes lesser. Therefore, such companies earn money very easily. • In shopping malls, shops selling the need items like foods, spices, For example, an Easy Day store consists of all items that you need on a day- toiletries, shoes, and clothes etc and the want items like cars, and to-day basis. These items are cheaper. Assuming that 1000 people buy groceries jewellery etc. are never common. from an Easy Day showroom in a day and even if one customer is buying items • A shop that sells spices does not sell cars. of worth $ 500, then what is the total daily income of an Easy Day store? • Customers in a grocery store or an apparel store are more in number than in a car showroom. Rough work: 1 person x $ 500 = $500 1000 persons x $500 = $ 500,000 in a day Oh! Isn’t that a hectic job to handle 1000 people in a day? However, there are companies that only deal with the wants or desires of 16 17
14. N e e d s a n d Wa n t s A r o u n d U s Book Title people. Such companies believe it to be a smart way of earning huge money by a country are diverse. A country needs good doctors, good schools, colleges, reaching out to a few opulent people only. The fact that every person doesn’t and strong defence system etc for the well-being of its countrymen. So, they have wants, even if they have, not many can fulfil them because they don’t have have such institutions within its borders. A country also grows crops, weaves enough money to buy them. Therefore, items that fulfil wants of people are clothes, and produces other items that are required by its people on a regular less in demand. Hence, they are expensive. The sale may not be high but such basis. This self-efficiency also makes country crisis proof and independent. companies earn a good amount on a sale of even few items. Mostly, a country fulfils its need by itself. But, there are other ways also For example, a BMW car showroom sells only BMW cars. Therefore, through which a country fulfils the need and wants of its people. customers visiting a BMW car showroom are genuine buyers. Not everybody can think of buying a BMW car. “I named my car Itch, not because it’s all scratched up, though it is, but because it got under my skin without tickling my fancy.” – Jarod Kintz Let us assume, approximately 1 to 2 cars are sold in a week or two. So, even if one customer buys a BMW 3 series car that cost’s up to $ 65,000, then what is the total weekly income of a BMW car showroom? Rough work: 1 person x $ 65,000 = $ 65,000 2 person x $ 65,000= $ 130,000. Wow! Only two customers and $ 130,000 in a week! Not bad. It’s a good deal. This is how our needs and wants are fulfilled by companies. Companies produce items for us keeping our needs and wants in mind. Some company deals only with the items that we need and some with what we want. Another example is a jewellery shop.A jewellery showroom consists of expensive diamonds and gold jewelleries all around. These are the things that people want occasionally. How often in a month do your parents buy jewellery and worth how much? Any Guess! How Does Our Country Meet Our Wants and Needs? There are 2 types of countries, developing and developed countries. Last month I went to the U.S. on a project. I stayed there for two months. Countries that are fighting with poverty, poor education, poor healthcare No wonder why it is known as the super economy and super power in the and other social issues are called developing countries like Bangladesh, world. It is so well organised. I am impressed. Do visit it sometime in your Afghanistan, Vietnam and Sri Lanka etc. However, countries that have no such lifetime. Well, many of you might have already gone there with your parents issues, are rich and advanced in technologies, are called developed countries and I am sure you would agree with me on this. like the U.S.A, U.K. etc. But you know what? I found the U.S. market full of Chinese items. I bought Now, imagine the size of a country. It is a huge piece of land with millions of a little unique doll for Tia. After all, she is my little girl. When I brought it different people, different culture, and states. Therefore, needs and wants within 18 19
15. N e e d s a n d Wa n t s A r o u n d U s Economics Common Sense for Smart Kids home, I saw the label “Made in China.” God! I bought this cheap Chinese doll Well, I thought a lot about this and decided to explore more about China. for $ 50. I couldn’t believe it. I came to know that Chinese economy is giving a tough time to many other Other day, I wanted to buy a pair of desert boots as I was planning a small countries these days despite being a developing country. Seriously, even in trip to the Amazon desert. So, I went to nearby market and picked up a pair developing countries like India, most of the goods sold are Chinese, be it a of boots that I liked. It too had a label of Made in China. God! I got confused balm, shoes, body spray, room spray, clothes, and even undergarments are whether to buy it or not. Out of curiosity, I explored the market to check on my “Made in China”. God save the quality of items. doubt and got a positive result. What were these Chinese items doing here? “God made everything that has life, rest everything is “Made in China”.” - Kcipompom Can you imagine the needs and wants of people of China? Well, they are similar to any developing country in the world. And you know that China tops “What! Chinese dog in America” the population chart in the world. Hey! I bought this dog from America thinking it’s an American one. But now he looks Chinese. So, how are the needs and wants of trillions of people met in China? Isn’t it very difficult for the Chinese government to provide basic needs to its people? A country usually fulfils the needs and wants of its countrymen by growing crops, opening schools and colleges for better education, weaving cloth in factories, and opening hospitals and by other ways within its border. China also does the same. So, this is one way by which a country meets the needs and wants of its countrymen. However, all of these facilities are not enough to meet the needs and wants of Chinese countrymen. Usually, poor people don’t have any family planning. In fact, they believe in many hands and more income concept. Therefore, most of the families in China had more than 2 children. It resulted in gradual increase of the country’s population. As a result, the country became poorer day-by-day. The Chinese government was finding it tough to fulfil the daily needs of its millions of people. Due to high population, China started suffering from the financial and other social crisis like poverty. 20 21
16. N e e d s a n d Wa n t s A r o u n d U s Economics Common Sense for Smart Kids Thus, the prime need of China was to control the growing population in Mother Earth. Have you ever noticed how is she fulfilling our needs and wants? order to reduce the environmental, social, and economic problems. So, their I told you how countries fulfil our wants and needs but have you ever thought government came out with a policy called One-Child policy in 1978 that was how Earth is fulfilling our needs and wants? applied from 1979. Under this policy, a family living in cities and towns of “Earth provides enough to satisfy every man’s need but not every man’s greed.” – China could have only one child. Those who had more than one child after Mahatma Gandhi 1979 were charged with fine based on the family income. What Mahatma Gandhi said is true. Our want is nothing but our greed. So, a country fulfils the need of its people by also making laws and policies. Look around, you will see construction of buildings all over. How many trees However, at times, a developing country depends upon developed countries do you see in your residential area? Count it today itself. I bet you will find not to fulfil its needs. Again as mentioned earlier, somebody’s want is somebody’s many. Not many people have gardens at home. need. This means, the want of a rich and developed country often becomes the You know when I was in school, I used to pluck the biggest dark red rose need of a poor and developing country from our garden and give it to my Mother on Mother’s Day. It used to cost me Look at another example where a developed country’s want is fulfilled by a nothing. As I grew older and went to hostel, I used to walk almost a kilometre developing country’s need. or two to pluck a red rose from my professor’s garden and give it to my Mother. Being a developing country, China makes things like shoes, electronic Though it cost me nothing, but I had to give a lot of effort to find out a garden. items, toys, cloths, and food items etc at a low cost because they don’t have And now as I have grown older, I have to locate a flowerist in nearby or far-off enough money. In order to reduce poverty, China sells these items to developed locality and buy a bouquet for $ 15 to give it to my mother. Most of the time countries like the U.S.A and earns huge money. The U.S.A buys these items when I don’t find any, I have to order it online for some $ 20 onwards where from China in order to save its making cost which is very high because the the company also charges the delivery price as extra. U.S.A. has a lot of money. They will use good quality of raw materials to make Earth gives us more than enough to fulfil our needs in the form of soil, these things unlike China. Thus, the want of the U.S. to have low cost daily water, air, plants, trees, and weather etc. To some extent, it also fulfils our items in its market is fulfilled by China’s need to earn more money to reduce wants through natural resources like expensive gem stones, metals like gold, its poverty. platinum etc. But have you ever thought how our wants are crushing the Earth Similarly, China is not only targeting the developed countries but also and its resources? developing countries like India which is emerging as the next powerful Today, we all are living in a brick jungle, a jungle where humans are the economy in the market. beast and there are no trees, grasses, flowers, and no co-habitants. Everything Now, moving away from countries to a bigger picture which is about our looks so artificial and man-made. How many animals do you share your locality planet. with? Find out. It’s a serious question. Also, when we ponder upon the thought whether science is a boon or a How Do Our Wants Affect Our Planet Earth? curse, What is your opinion? “Don’t go around saying the world owes you a living. The world owes you nothing. It Well, I consider it in 40:60.I accept Science improves our present but in was here first.” – Mark Twain a way, it is also destroying our future. New and improved technologies are The day I bought a piece of land, I was the happiest person on the earth. I only adding value to our life but are affecting our Earth very badly. Were the always wanted to have a small dream house with a kitchen garden. It had finally old technologies not fulfilling our needs? Yes they were. People were able to come true. I really thanked God for it. Now, I could also imagine a perfect entertain themselves with the black-and-white T.V some fifty to sixty decades family in my perfect house where I could grow organic vegetables. ago. One car for entire family was enough for commutation. Presence of trees By organic vegetables, a fact that strikes me is the endless patience of the and greeneries all around kept the atmosphere cool and balanced. 22 23
17. N e e d s a n d Wa n t s A r o u n d U s However, the scenario has changed drastically now. You are already witnessing the changed factors in your life. There are hardly trees around your house. You don’t hear birds singing when you wake-up in the morning. Weather that you witness is not the same as it was even last year. Summers are extreme in coastal areas too and so on. Our endless want is disturbing the balance of our nature. At the end, we Chapter 3 are going to be the sufferer. This means, our wants and desires are carving the path of self-destruction. The Real Thing? “The best way to find yourself is to lose yourself in the service of others.” – Mahatma Gandhi Guys, I am down with cold and fever and I wish My mom could really be with me. Right now, She is in Dubai for some official work and I am trying hard to You must have read about global warming. Do you know its cause? I am connect with her. sure you must have read about it. If no, then read about it. I really get annoyed when I can’t talk to Mom, specially when I need to hear her voice so badly.This is something really bad. “What! The phone is not reachable… that’s a bad service?” Tips to Think Like an Economist 1. Next time when you put forward your want list in front of your parents, ask for the price it would cost. Then think if your parents could afford it. Most important, think if you really want it. 2. Always use N-W formula in your daily life decisions and apply the outcome. 3. When you, your family, your friend have a new want, judge if it is harmful for environment or not. 24
18. The Real Thing? Economics Common Sense for Smart Kids Anyways friends, Welcome to yet another realm of the good old economics. Goods or Services or Both? I am assuming you are all thrilled to know what lies in store for you in There used to be a time when the terms goods and services were separated by this chapter. What? Not thrilled is what you say? It is all in the state of mind an OR (you couldn’t offer both then). They were definitive, non-intersecting I will say. You see, economics is the backbone of a society and it is that magic universes that had nothing in common. Later, however, with the world moving wand that will help you be what you are meant to be – the kings of tomorrow. as fast as it is, the OR was quite informally dumped and replaced with an AND. Besides, it really isn’t cryptology so you needn’t worry the slightest bit about Evidently, multitasking had arrived! But let’s take it step-by-step. Let’s start with understanding the unknown facts. Having said that, let me introduce this goods. topic to you; you must have read and/or heard the phrase “goods and services” before. No? Well, maybe not the entire phrase, but you surely must have heard Tangible Happiness – The Simpler Way of the words separately before. When I was young, the only thing I ever wanted was this really cuddly soft toy “Apple’s services are the reason their goods sell so well across the world.” that doubled up as a pillow when required (no, it wasn’t pink). I was 3, cute and Ring a bell? Take another example. “Online shopping is a great option; not only the teddy was inexpensive so, needless to say, I got it. are the goods original, the services are also brilliant.” That’s right. In this chapter, One day, my dad just took me to a local store, picked up the toy I wanted, we will discuss and understand everything about the concept of goods and paid for it and voila! I never looked back. Money had bought me my teddy and services. We hear about them everyday (we may even have an inkling of what we never went back to the store, not even when the teddy decided to reveal it’s they stand for) but do we truly comprehend them? That’s where I step in and innards to me through it’s now open seams. I simply tossed it with a heap of help you through. Let’s try understanding the concept bit-by-bit. I will first other discarded toys and moved on to the next thing that caught my eye. demystify ‘goods’ and their types; then take you through ‘services’ and finally, touch upon the people associated with both. So, jet set ready? Go! Intangible – The Feel-Good Factor This time it was a remote-controlled aeroplane that flew (actually flew!) when required. The deal however, was a tad bit complicated this time. I was older, less adorable and the demand more expensive, so I had to wait till dad “researched” (yepp, gone were the good old days of instant gratifications; these days tantrums only led to NO gratification of demands!). You see, it wasn’t just the plane that was important; apparently, who made it also mattered. This was taking longer than I was used to so Mom decided to take me to an aeroplane show happening nearby. We bought the tickets, went inside and watched a whole lot of planes in action; what a fun-filled evening! That day however, money didn’t buy me anything I could 26 27
19. The Real Thing? Economics Common Sense for Smart Kids touch. It just bought me a feel-good experience! show. I didn’t take home any aircrafts (and I am still not pleased about it!) but I had a GOOD TIME for the money that was paid. Now that was a service, A Step Further quite like getting a haircut in a salon – you don’t get anything tangible to After a few days, dad took me to a big touch or own but you do walk away feeling great (or awful, depending on departmental store, went to a particular corner the haircut). This is a SERVICE – nothing to touch, nothing to own; just an of the “Gadgets” floor and made lengthy experience! inquiries before I got what I wanted. This may The 3rd case is what combines them both and takes it all to a whole new have been another one of my toys but it was level. In this case, not only did I get the plane (the GOOD), but I also got it fixed different in one way; I didn’t throw it in the when need arose. While in the first visit, I took home the plane, in the 2nd I took heap when it stopped working. home the satisfaction (experience) of having my favourite toy fixed. The second Rather, we went BACK to the store where part was service and both arts combined together make the concept of “goods dad demanded SERVICE. AND services”. “Hmm...interesting!” is what I thought. I realised I was wrong earlier. It hadn’t mattered who MADE the plane; my dad’s Let’s Get A Little More Serious research had been focused on who could FIX it when the need arises. This time What do you buy when you go to shop? around, money bought me something more than a toy; it also bought me a You buy things that you need and want. The whole world around us is full promise of FIXING the toy. of such things. Have you ever thought what are they collectively called? How are they addressed in the market? Do they have any characteristics or are they What Is What? categorized? In economics, these things are called goods. Goods are the things Considering my spending experiences above, I faced three basic scenarios: that satisfy your need and want and have an economic utility. All goods are • Money bought me a teddy tangible that means they can be touched and seen. • Money bought me an aeroplane show experience Do you know that Goods in economics is usually used in plural form? It • Money bought me a plane and a promise to fix it refers to materials or products that you can touch and see. In the first case, all I got was a teddy. Happy as I was then, i now realised there want much to the purchase at all. We walked up to the shop, picked out a favourite, paid for it and bought home a commodity – or a GOOD. So, things that you can touch, feel and own–much like the delightful teddy of my toddlerhood– are categorised as GOODS. The second example is one where all I got was an opportunity to WATCH a 28 29
20. The Real Thing? Economics Common Sense for Smart Kids Fishing It is up to the owner if he wants to share it with others or not. Private goods are Dave wanted to go for fishing. But he did not excludable, that means, people have to pay in order to use it. have any fishing tools. So, he invited his friend Joe who had a complete fishing kit like gear, float adaptors, and baiting niddles etc. Dave knew that Joe would never allow anyone to use his fishing kit as they were expensive. But Dave had to do fishing. They finally sat on the bank of the river and started Do you find “Excludable looking goods” a tongue twister? a n d Call it Paid goods. for the Such goods are also rivalrous, that means, one individual’s consumption fish to hit will reduce the consumption by other individual. For example: If you buy an the hook. entire candy stock, then other person will not be able to buy it anymore. All of a Recently I got a job in a software company and I have to drive everyday sudden, from my house to office. The road during office hour is generally very really the hook crowded. There are several cars and buses plying on it. Even many people got heavier. walk on pavements beside road too. But here, even in this scenario, there is Finally it something to be worth observing and learning. happened. Can you name the product from the above scenario that is owned by the The fish was government? It’s very easy guys. Yes, road. there hanging in front Now, tell me who all purchased and used it? Nobody purchased it. It is for of them. Dave wasted no time in all and everyone uses it for free. Thus, road is a public good. taking out some cents from his pocket and offered Joe to let him go for the In economics, goods that are provided by government and are used second shot. Initially Joe hesitated but he agreed eventually. The place was by everyone are called public goods. Public goods are non-excludable or then full of laughter, joy and fun. unpaid. People can use these goods without paying for it. These goods are By the way, can you name a product from the above scenario that is owned non-rivalrous, that means, consumption of such goods by an individual will by one of these two boys? It is the fishing kit owned by Joe and only Joe can use not affect its consumption by other person. For example many people can this kit. walk on a road at the same time. Therefore, to summarize, we can easily say Dave had to take his permission for using it, right? Thus, the fishing of Joe that is a private good. Private goods are the things that are owned by an individual. Public Goods: are the goods that are in plenty and the people are free to avail them. Other examples are street lighting, fresh air or a park. They are non 30 31
21. The Real Thing? Economics Common Sense for Smart Kids rivalry and nobody can restrict anyone for using it. Government is not going to charge us for using it. By the way, people who Private Goods: On the other hand, private goods are the goods that are produce goods are called payable and it cannot be used after consumption. For example you have to producers in economics. purchase a burger from Mc Donald’s in order to eat and then after consumption These people are really it is no more available. worth knowing. They are the ones who give us what The Real Makers we want. I asked for an Have you ever thought about the role of goods in your life? Xbox and it’s already there Goods are very important part of our lives. What you need are goods, what in the market. You know you want are often goods. So having seen all these, it really makes sense to what I religiously prayed for know who all these people are who make these goods and make our lives so it every day to God. So now much dependent on them. I am thinking, is God also The chair you are a producer? sitting on, the textbook you are reading, clothes Majority of goods are produced by individuals or groups of individuals. you are wearing, pen Goods that are available in a market are such examples. These goods are in your hand, the food consumed by all people. However, some goods are produced by government in your lunch box, and are restricted for specific groups of people in a country. For example, water in your bottle, government organizations which produce aircrafts are meant only for people everywhere we see in Defence. goods. Your whole life is So this was all about Goods and its importance in our life. What next? controlled by goods. You are nothing without Serve Me Please! When you go to the Mc Donalds and order for burger,cold drink, French fries, goods. Beat that. what do you observe? You must have seen that some goods are natural and some are man-made. We see that an executive behind the cash counter or the kitchen area Human beings use natural resources to produce goods like cottons for weaving prepares a tray with our order and serves it to us. This activity is called service. cotton clothes, metals like steel, copper, iron for producing utensils, cars, and In other words, service is an economic activity which is done to satisfy other goods, and coconut for producing coconut oil etc. Even natural goods like someone’s need and want. It is not a product or a material. Therefore, you vegetables and fruits are nurtured by human beings in agricultural farms. cannot touch or see it.That’s why it is called intangible. Here is another example to understand it better. You want to watch a film in a film theatre. First, you spot a film theatre that is showing that film. Then, you go and buy tickets for your show from the ticket counter. You go inside the theatre. An executive behind the projector plays the film as per the scheduled time. While watching the film, you want to munch on 32 33
22. The Real Thing? Economics Common Sense for Smart Kids something. So you go to the food counter and place your order. The executive are judged on the basis of their dimensions in quality like the performance, behind the cash counter serves you the order. durability, aesthetics, features and reputation. Thus, the activities of selling the film tickets, showing the film, and Let me tell you some more examples of services that you see around. serving your food order are all called services. If you observe, you will see that • Dr. Dang advises his patients to take some dietary supplements your life is not only full of goods but also services all around as well. These • Alicia, a student receives oodles of knowledge when she attends a class people who give these services are really awesome. Life is so smooth because in her college. of them. • Robert gains business insight by watching business news channel on A service is work that someone does for someone else. A dentist, bus driver, cable TV store clerk, and postal worker are all people who provide services. Services The phrase ‘Goods and Services’ is commonly used to comprehensively capture all production in the economy. Intangible services are generally combined with tangible goods. Our wants and needs are satisfied with either tangible goods or intangible services. What will you see when you go for an exotic dinner at a lavish restaurant? They lay down the table, provide food and also they provide an ambience with music and dance. Don’t you think here goods and services are going hand in hand? Of course they are. 34 35
23. The Real Thing? Economics Common Sense for Smart Kids The One Who Serves Did you ever notice? Just like goods, services are also categorised as: • We as a consumer have choice to what we want to buy or avail as a • Private service • Public • Producers can make or sell almost anything Private services are offered by individuals or a group of Further services have certain characteristics like individuals. These services • Pay Again are used by lesser number • The Inseparable of people. People have to pay • No Delay in order to use such service. • It’s Different The price of such services is usually driven by the economic Pay Again Services have a tenure after which it becomes unusable like the empty seat of condition of a country and a plane after its departure cannot be charged. A service that has been availed the quality and price is very becomes perishable; you have to pay again in order to avail the same service competitive. For example, again private education, health spa, fitness centre etc. The Inseparable Last year my school fee was A service and a service provider are inseparable, as the promptness and the $100 per month. This year suddenly, it has increased to $150. efficacy of the service decide the satisfaction of the customer. For example when you go to the barber’s shop and you are made to sit on the chair in the hair Give and Take dresser’s shop. Goods are produced by producers like the farmer who grows crops or the manufacturers who produce things and the people who consume these goods No Delay are called as the consumers. Producers and consumers depend on each other. As soon the service is requested by For example, farmers sell their crops to consumers and depend on them to the customer, it should be generated earn money. Consumers depend on farmers for food. Many producers are very without any delay and hindrance specialized in what they offer. For example, some farmers specialize in growing soybeans. When producers specialize, they do a better job of providing goods or It’s Different services that people want. Each service is unique; it is one time Producers make goods or provide supply to earn money and they set the generated and availed by a customer price according to the demand and supply of that product in the market. If the then it is over, meaning that each demand is higher producers grow more and manufacture at a higher rate and service is altogether separate in when the demand is less, they grow less. As simple as that! terms of its time, duration, and It also applies to the price, meaning if the price of a certain thing is higher availability and it is in demand, then the producers manufacture the product more. Profits earned in the private service go to the owner only. They 36 37
24. The Real Thing? Economics Common Sense for Smart Kids use this money earned in improving the service for people and yes, some part other stationary items. Other than study, I also play the Guitar in music class. of it of course goes into their pockets. For example: Restaurants, cinema halls, So, my father pays for the education service and the goods that I use there. malls, private airlines, and mobile services providers. On the other hand, the In case, I have to go somewhere, I go to metro station, buy the token and public services are owned by government. Such services are used by huge board the metro train. I have a pre-paid mobile phone connection. I recharge number of people. People generally don’t have to pay to use most of the public my phone and talk begins. Well, we always pay for what we buy and get a bill. services. However, some public services are paid. The prices for these services Have you ever seen a bill? Did you notice that you pay extra for what you buy in are subsidized like government hospitals, schools, colleges, public transport the name of tax? (railways, metro train, and bus service etc) circuit houses etc. Subsidise means to pay lesser amount for the goods and services so that it We Pay Tax can be purchased by people at lower cost. Usually, all goods and services that We pay tax for some of the goods that we buy and for all services that we are meant for countrymen are at subsidized rate like goods in CSD canteen, fee avail. of a public school or college, and LPG. You can think of more. We even pay tax for the money that we earn. Tax is a compulsory amount By the way, did it ever cross your mind that in the example given above has charged by the government of any country on service, income, and goods in combo packs of goods and services? I bet it didn’t. order to fund the public goods and services like street lights, street cleaning, Goods and services come in a combo pack (Goods & Services). If I go to a and paying salary to the government employees. restaurant, I order for food. The food is prepared and served on the table. I eat the food and pay for the food and the service offered. Similarly, I go to school Hey! Do you know that we pay service tax on the services that we to get proper education. I go to school by school bus. I read the books and have avail, income tax on the money that our parents earn, property tax on the properties that we own, sales tax on the items that a shopkeeper sells, The tax rates are different for all. I will tell you more on tax when you grow up. It’s a bit complicated dude. No hard feelings. Thus, we saw that all of us contribute in an economy in the form of tax and goods and services are the factors for this contribution. We also saw that people buy and sell goods and services to fulfil their family’s needs and wants. They pay tax to the government while buying and selling goods and services. 38 39
25. The Real Thing? Economics Common Sense for Smart Kids Gross Domestic Product GDP is the “market value of all final goods and services produced within a country in a given period of time. The GDP calculation accounts for adding up the market value of each good or service rather than adding up the quantities of the goods and services directly.GDP is calculated for those good that are sold in the legitimate market therefore all those good and services that are bought and sold in the market counts for the country’s GDP count. On the other hand, Now, think about the total goods and services that are illegally sold or are illegitimate and do not account population of your colony. in the country’s GDP count. How many families do you think live in your area? Tips to contribute in your economy 1. Calculate the total amount of tax paid by your family in What amount of goods and services are bought and sold in a day by these various occasion at the end of the month. Collect the bills people in your area? You are free to guess. Well, with your guessed amount____, paid on various occasions by your family member. these people have paid a certain tax to the government. 2. Observe some public services in your neighbourhood that you think must improve. Write best suggestions to improve I know that you don’t know how to calculate tax. Let us take an it. imaginary figure only to understand this topic. Let us say tax is 3. Find out the ways to send these suggestions to the respective the 12% of the total. Okay. Now carry on. government authority. Ask your father about the procedure and ways to do it. Similarly, ask the same question for the state you live in. Note that there are other cities too in the same state. Guess the population of entire state and find out how much goods and services are bought and sold by people in a day? Then, find out how much tax is paid to the government in a day by your state? Calculate the total by 12%. That is the tax amount. I hope you are good in calculating percentages Whatever your guessed amount is____, is the revenue earned by the government from your state in a day. Government will use this revenue in the development work of the country by providing you more and better public goods and services. Thus, goods and services are the key factors of an economy. “Life is like riding a bicycle. To keep your balance, you must keep moving.” ― Albert Einstein 40 41
26. Economics Common Sense for Smart Kids this beautiful morning, I would have been under my quilt with chilling AC on and snoring till midday. But everything happens for a reason. My maid knew it was a weekend that day. She generally used to come late, then why did she come so early that day? Well! As I said, “Everything happens for a reason”. Chapter 4 My maid, an elderly village lady had been cooking and doing my household cleaning since the time I had shifted to this city. She stayed with her son and Free Lunch! daughter-in-law, in a very small slum with almost no space to sleep for another person. Her husband was very soon going to join them. He had to leave for his village because his land was forcibly taken away by the private land owners. My maid pleaded that I allowed her husband to sleep in the room next to the garage that I was using as a store room, at night and he would search for a job during “There ain’t no such thing as a free lunch.” the day. — Robert A. Heinlein This seemed somewhat unpleasant to me at the beginning as I began to think about the credibility of the man but while she was talking, something caught my attention. Did she say driving? I asked again. She told that since her husband was a driver, he would start searching for jobs as a driver. This clicked me instantly, in fact I was also searching for a driver as my office was located too far and I had odd working hours. I offered her husband to stay in the store room not only for nights but also during the day for any number of days. It Have you heard about the already had a cot and a fan and I would not charge a penny for rent but for that phrase “Give and take” or he would have to be a full time driver for me “No free lunch”? Obviously, ’no free lunch’. To this, she quickly agreed as if she was waiting I am sure you must have to hear this. but let’s go little deeper into Now look at the another case of a boy named David. it. So, here we go. David was a 9 year old boy. He lived with his grandma. Grandma would stitch clothes to earn livelihood. She would earn a little which was not always Now here it is what my Aunt in my neighbourhood has to tell about one of enough for them. But David was the whole world to her. She would do anything her experiences. Believe you me, it’s not boring all the time. Sometimes they to make him happy and give him a good life. are worth paying attention to .So, let’s go ahead my dear Aunt. One fine day, grandma had to go out for some work. She gave him $10 to buy something to eat. As she was out, he thought of going out and playing. So, Aunt and the Driver he went straight to the park. There he saw some children playing football. He It was a wonderful morning and the sun appeared like a red ball of fire, as if it stood at a corner and watched them playing. While watching them play, the was inviting me to come near and play with it. So nice was the morning breeze thrill and the excitement to kick the ball and run for it, started getting into his and all the more nice was to have a cup of tea sitting in the balcony and gazing head. the clear blue sky. Had it not been for my maid, I would not have been a part of ‘Look at the way he is playing? He doesn’t even know how to pass the ball... 42 43
27. Free Lunch! Economics Common Sense for Smart Kids huh! I am a better player than him. Let me show him how to pass the ball.’ Thought David and approached a boy standing close to him. “Can I play?” David asked as if it was an order. The boy, who was almost 12 year old, looked at him for a while and ignored his presence. “Please, can I play? I am a good football player” David repeated. This time he had a tone of request. The boy gave him a distracted look for a while and said,” Go and stand at that corner. Catch the ball whenever it goes out.” Same thing “But I want to play” David replied promptly. happened with me The boy looked at him through the corner of his eyes and said “If you collect few days back. I the ball for us, you will get to play.” Both of them exchanged a cold look and wanted to bat but David agreed. they asked me to field. Time passed and the match went on. David kept running after the ball saying my turn… my turn… but no one listened to him. It was getting darker then and the visibility had reduced. At last he was called in the team to play when a boy had to leave for his home. David was very happy. ‘Now, I will show how to play’ he thought. But he could only play a while as it was complete dark and everyone started leaving for home. David too left for his home. While on his way back home, he saw a little snacks van outside. After playing football, he was feeling hungry. Grandma had given him some money to eat. He wanted to eat burger. So he went to the van and ordered for a burger. “$ 15 for a vegetarian burger and $ 17 for a chicken burger” said the shopkeeper while serving others. “But I have only $ 10” said David. Without paying much attention to him, the shopkeeper asked him to pay in order to eat burger. David stood there silently. The aroma and sight of the junk delicacies were mouth-watering. He could no longer hold his hunger. One man who was eating at the same stall saw him. He was watching David from quite some time. “Hey boy, come here” The man said. David looked at him. He was a middle-aged man, heavily built, and half bald. David stared at his plate that had two burgers, potato wafers and a glass of cold drink. The man caught him doing so. He showed one burger from his plate to David and called him again. David went closer. 44 45
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