Kieran Lawrence looks at autonomous weapons and the effect they could have on modern warfare
Continuing a series on world leaders, Miles Deverson takes a look at Angela Merkel
Ben Bland examines the fallout from the Iowa caucuses and looks forward to the New Hampshire primaries.
In the first of a series on world leaders, Miles Deverson takes a look at Nicholas Sarkozy
The Yorker’s politics team recognises that economics is not the easiest topic to get your teeth into. Yet we also feel an understanding of economics can benefit everyone. This column aims to demonstrate why. Cutting through the jargon, we hope to provide economic solutions to everyday student problems.
Much of the world looks down on students as those who use their degree as an excuse to get drunk and have fun that ordinary individuals, with the pressure of work cannot, enjoy.
This was brought to light in 2010 when students in Essex were derided by local residents for receiving £500 per term rent rebates for being woken up early by building works. One student told the Daily Mail, to much ridicule, “Sometimes I like a lie-in until noon, but if I try to do that now, I get woken up again and again.”
But why do students have these “lazy lie-ins” as described by the Daily Mail, and how would an economist understand it? An economist says each firm and individual has what’s known as a “budget line” or alternatively a “Production Possibility Frontier” (PPF). This is effectively the maximum of a combination of goods they can produce in a given timescale. In our example, the combination of goods is hours working and leisure hours (we’ll assume sleeping is ‘leisure’). The maximum is always 24, so if you spend eight hours working, you have 16 hours for leisure and so on.
This means that there is what economists call an “opportunity cost” to making one choice or the other. For example, the opportunity cost of having 18 leisure hours is having 18 less hours in which to work. Similarly, those six hours of working hours have an opportunity cost of the six less hours you have for leisure.
But when it comes to individual’s opportunity economists are largely interested in what’s known as “utility”, effectively a posh word for happiness or pleasure. The “Law of Diminishing Marginal Utility” tells us that each time you do or consume the same thing, you get less utility (happiness) from it.
For example, if you sat down and ate 100 chocolate bars, I suspect you would get a lot more pleasure from the first chocolate bar than the last. In our example, the pleasure you get from the first “leisure” hour will be significantly greater than the pleasure from the 24th, as you begin to worry about that essay which is due in on Monday and is yet to be started!
This also means that if you have 24 hours of leisure time scheduled, the opportunity cost from losing one of those hours to work is very small, as you get little utility from it and gain a lot of utility from the first hour of work. However, the more hours you give up, the greater the opportunity cost of a working hour is.
This is where economists talk about inefficiency, and in particular, “allocative inefficiency”. Economic theory states that a rational actor should be aiming to maximise their utility, in our case that would be selecting an appropriate number of work and leisure hours to both get work done and to also enjoy yourself. Allocative inefficiency would occur where either too many work hours were chosen or too many leisure hours were chosen, that is to say that you allocate your time in a way which does not make you the happiest you could possibly be.
For a lot students (this author included), the allocative inefficiency comes from too many “leisure” hours and insufficient “work” hours, which results in students not maximising utility as late night cramming and last-minute essays create stress and anxiety.
So how do students combat this allocative inefficiency? There are numerous factors which lead to the inefficiency but in this case it seems to be a monopoly problem. Because there is one individual deciding the allocation of working and leisure hours, they are likely to select the easiest allocation, rather than the best allocation.
This also can occur in business when a monopoly (where only one firm provides a product, instead of many) firm selects the number of products it produces based on what will maximise its profit, rather than how much everyone needs.
The solution in business is to increase competition, as a competitive market is more likely to produce a proper allocation of resources. However, this seems a lot harder in our case, and probably explains why students’ habits have rarely changed in the last 10 years.
"The “Law of Diminishing Marginal Utility” tells us that each time you do or consume the same thing, you get less utility (happiness) from it."
I mean, just fundamentally untrue, for anything outside mindless entertainment (and even questionably that). The first time you pick up a guitar, do you get more pleasure than when you've practiced for a year and can pull off Classical Gas perfectly?
Yes. Personally I know I got more pleasure learning the piano 7 years ago when it was a novelty that I do when I play (note-perfectly of course!) nowadays.
Robin, that is certainly one way to take on what is one of the fundamental principles of modern economics. There is no doubt a debate about where the law of diminishing marginal utility in fact doesn't hold, but that debate generally concerns a tipping point. If you're talking about guitar practice, whilst what you say may be true, if you practiced too much, you can easily burn yourself out if you go too far. Hense the idea of a tipping point.
Additionally, had I not been trying to condense what is a very complex problem (I could easily have discussed for 3,000 words) is that the law of diminishing marginal utility focuses on purely homogeneous goods. That is to say goods which are entirely the same.
So it's fair to saw that the law is partially applicable to this case, particularly when thinking about 'work hours', but also has its drawbacks.
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