Economic Naturalist

Introduction

Different People face various circumstances and situations when making decisions (Wayne 48). Decisions usually have implications under most of these circumstances (Fallis 379). Over time, Studies have revealed a significant difference in regards to how economic naturalists and non-naturalists make decisions (Robert 194). The explanation offered is that an economic naturalist can see the expression of economic principles in their everyday life. Studying economics changes how people see things from an economic point of view. Economics courses focus on ensuring that students realize economic principles in all aspects of life, and utilize economic theories in decision-making processes. The course focuses on two questions that are an excellent example, as they are everyday occurrences that the population often overlooks as they are used to them. The Braille on drive-by ATMs though strange from our perspective is another great example that has a logical answer. Economists tend to discuss simple terms in a complicated manner, something that this paper avoids when answering the questions presented below. The paper starts by discussing the link between social and economic theories, explaining how social economists regard gifting with products and services as opposed to money. After the discussions, the study delves into explaining the concepts of growth and income in economic terms. This discussion focuses on expressing how changes in outdoor appliances are being experienced with regards to the quality of the products becoming more advanced each time. Furthermore, there is continual improvement in the type of products being used, and when the products are introduced, they only serve the high end market. However, over time, they become available to the middle and lower level classes, as new appliances are introduced for the luxury market. After discussions on outdoor appliances, the paper provides a rationale behind the availability of taxis during rainy seasons and the changes in price. All of the explanations that the paper presents focus on how economic principles apply in everyday life, but often go unnoticed.

This question on why human beings choose to give gifts of items rather than the most usable tangible object, money, is an economist’s favorite riddle. Many have analyzed the question, and each social economist has a different response to it. The problem that many economists face is their inability to apply economic decision making, to social events that can be easily explained. Giving cash is only socially acceptable in certain circumstances, for instance in weddings, birthday parties or during Christmas. The reason for this is simply that gifts mean something to both the receiver and the giver. The only significance of monetary cash is that it can be used to purchase anything.

Humans are social creatures and gifts are given for a variety of reasons. They help to build relationships with other people. However, there is an economic loss in present giving, at least according to economist Joel Waldfogel (Waldfogel 319-324). Gift giving results in a deadweight loss that is one-tenth to one-third of the gift’s value. These estimates are wide, as it depends on the nature of the present. According to Waldfogel, gifts given by immediate family members or significant others are more efficient than those given by the extended family are. The logical theory behind it is that in close relationships the giver and receiver know each other’s preferences, which reduces the deadweight loss. One of the most important and logical findings from this research is that cash gifts were more likely to come from givers that believed that any gift they give would have a lower utility than the cash itself through being unaware of the recipient’s preferences.

This research is out of the ordinary as it is logical and rational. While it does not always explain every gift, such as grandparents’ preferences for giving sweaters or other unwanted gifts, it is interesting as it provides some economic rules behind how people should offer gifts. However, a clear gap is evident between the research and its application, as Waldfogel’s theory only applies to specific situations. This approach does not explain how someone would provide another with a gift for a housewarming party, or what an excellent gift for a baby shower would be. The society dictates that cash while being the most useful, is not a recommendable gift. People would be looked down on in these circumstances; one only needs to think about him/ herself in a similar circumstance to know this is true. Many economists ignore the utility in receiving as well as giving a gift. For example, it would be embarrassing to wear a sweater that a grandmother has knit with tangible reindeer on it in public. Regardless, the grandmother gains a significant amount of utility in hand knitting the sweater and giving it to her loved ones. However, the recipient may derive no pleasure from wearing it but may receive utility from knowing that someone cares about them enough to spend so much time making a sweater. Thus, the main problem with this line of research is that the anthropological perspective fails to take into account the utility arguments of economics (Swanson). Besides, the economic perspective fails to take into account the anthropological assumptions on why certain gifts and actions provide more utility to certain individuals than others. Researchers need to carry out additional research, as it is clear that economists need to consider the utility provided to the gift givers as well.

The fact that rapid income growth among people with a high income has been present throughout the years is a concept that has made the demand for high-quality appliances and products rise. The higher the demand for these types of products, the more their prices reduces. Economically, this attributes to the fact that when more people can afford the costs of goods and services, which are abundantly available, the businesses get to charge lower costs so that they can enjoy the benefits of economies of scale. Due to the rapid income growth, middle-class consumers can get their hands on appliances and products. However, some products and appliances are usually affordable only to the high-end spectrum of an economic market in terms of income. This market, according to many researchers is usually reserved for top-level managers of corporations such as CEOs and business owners. In the recent past, entertainers and celebrities have also become an integral part of this class.

According to economic principles, a majority of different types of goods and services normally have their prices reduce after a certain period. This, according to economists insinuates that the people with high income are usually the first ones to access products and appliances whereas the middle class can only afford them after the prices reduce. This has been going on for years, especially after the industrial age. For example, when the first few computers were released to the public, only the rich could afford them. The computers were not many and thus could not meet the demand, which led to their increase in price. After the evolvement in technology, companies spent less on building the computers and sold them for a more reasonable price. Among other similar examples, include cell phones and TVs where only a few people could afford them back in the 80’s. As the cell phones evolved past the pager era, more people were able to afford them for personal use. Regardless of the appliance or product being released to the public, most of the first generation ones are always at such a high cost that only people with high incomes can afford them. Once the second and third-generation are produced in large quantities, their cost significantly reduces.

Most of the recent growth and income in the United States occurred among the nation’s highest earners. For example, although median inflation adjusted, family income grew by less than 14% between 1979 and 2007. The corresponding growth for the top 1 percent of earners was over 200 percent. Later, the income growth was even more dramatic. The CEOs of the largest US corporations earned 42 times as much as the average worker in 1980, 531 times as much in 2000. Rapid income growth among those with already high incomes spawned an increase in demand for not only costly outdoor cooking appliances but also a broad spectrum of other luxury goods as well. The quote is from the Economic Naturalist 4.1 and it explains that the more Rapid Growth Income increases, the more demand increases for higher products. This is economically healthy for the middle class, as all the companies that create these products will start to compete with one another, to create the highest luxury good for the price. Eventually, old products begin to fall out from the market making way for the new products. In regards to cell phones, and especially the iPhone, when comparing the first generation phone to the newest, it is clear that iPhone has evolved while maintaining the cost price since consumers willing to pay the high price for the device to expect a more luxury phone to be released every year. When a new phone is released every year, the price of the older model drops significantly such that those in, the lower class can afford them. This is a perfect example of the term income effect, which means, “the change in quantity demanded that results from the change in real purchasing power are caused by the price change.” The creation of luxury goods will always be constant as long as there is a demand, but its price will always change. Whether it is available in the present moment or years from now, the quality of products will become more affordable as we evolve.

In line with the economic principles discussed above, it is evident that growth and income usually result in product and appliances prices reduction eventually. Therefore, what is not affordable to the majority today may be affordable within a certain period. This has the potential of resulting in improved quality of products and services over time. Furthermore, it has the capability of resulting in the growth of the middle class over a long period. In the end, it will also ensure that the population will at one point in time access and afford appliances and products that during their inception was only affordable to the affluent in the society.

Another interesting economic aspect with regards to economic naturalist can be expressed through the phenomena of finding a taxi in the rain in New York. In New York, it is difficult to find a taxi on rainy days, which is troubling considering the precipitation in the city on average 121 days of the year. However, explaining the phenomenon may be a little difficult, as it does not make rational sense. People are more likely to use a taxi on a rainy day to avoid being rained on, which means demand would naturally increase. The classical economic theory would hold that demand increases too rapidly for supply to meet it, and a new equilibrium to establish itself, which would make it difficult to find a taxi when one needs it most.

There are two competing theories that challenge the traditional economic model. The first maintains that taxi drivers are target earners, and force themselves to meet a specific income level. This was proposed in a seminal paper delivered by economists Colin Camerer, Linda Babcock, George Loewenstein, and Richard Thaler. The primary findings revealed that taxi drivers make labor decisions one day at a time instead of planning their working hours over multiple days (Camerer et al. 407-441). These economists also found that taxi drivers tend to work until the target income is met. This research also utilized a literature review that helped demonstrate that similar studies had been conducted before with similar results, though problems in their methodology prevented them from being conclusive.

The second theory regarding the supply of taxis stems from Faber’s research. He found that only a fraction of taxi drivers’ wages is unanticipated and that they do not make large changes to their labor supplies on a daily basis. The research also discovered that taxi drivers increase their labor supply during peak seasons, such as holidays and rainy days, which directly contradicts previous studies. According to Faber, the reason taxi drivers are difficult to find on rainy days is that demand has simply increased by an exponential amount and the supply cannot keep up, despite taxi drivers increasing their labor supply. Faber attributes the different findings to previous work using poor methodologies and not conducting accurate research.

The labor supplies of taxi drivers during rainy days and sunny days are therefore different but increase during rainy days. Earlier studies simply assumed that because drivers have target incomes that they try to meet on most days, they would not shift their labor supply curves during rainy days. The economists did not seem to consider one of the most basic elements of labor economics; namely, the extension of the income and substitution effects. Taxi drivers are more inclined to work during rainy days because they maximize their incomes as demand soars since people do not want to walk to their destinations no matter how short distance is. One needs to wonder, though, whether the type of demand has changed as a result of rain. For example, it would theoretically be possible for economists to study how far a taxi driver takes the average customer, and then compare those findings to whether they change during rainy days. It would also be interesting to examine whether Uber and Lyft have upset this stereotype.

However, the personal experience of many implies of fewer cabs on the streets on rainy days. It is possible that the income effect overrides the substitution effect, assuming it is true. Drivers would then minimize their work, as they will make more during a shorter amount of time. However, there is a more rational argument as to why drivers would decrease their amount of time on the road. New York is a busy place to drive in, and during the rain, the traffic increases and is made considerably more dangerous. While it is subjective to say that it is more miserable of a time to drive, let us assume for a moment that this is true. Drivers make the rational decision to end their shifts early because they choose to protect their vehicles from experiencing a wreck or causing an accident. The Economist reported this in an article that examined the relevance of these studies and whether they are far off the mark or not (The Economist). The article featured conversations the author had with taxi drivers, and while it was not a scientific study, it is still important to continue with the discussion. This matter is more related to game theory than it is related to labor economics.

If drivers make the rational decision to reduce labor supply to reduce their exposure to risk, it makes this decision more akin to a game theory decision. Therefore, drivers are changing the decision to drive into a composite indicator that determines the likelihood of remaining on the road. If the risk grows to a certain level, or conditions become unfavorable or unpleasant, then more drivers are likely to reduce their supply of labor. This also suggests that labor supply for taxi drivers is relatively elastic, though it depends on the driver. Further research is needed, but it is safe to assume that taxi drivers belong to a similar socioeconomic class based on similar income levels; the only thing that would determine whether they fight the trend during the rain is if they have specific consumption needs or random events that require income. This discussion is important because it shows that often, the most logical solution is the simplest and does not involve a complicated set of equations to prove. Intuition is enough to determine that driver preferences are dictated by more variables than just supply and demand functions. It is difficult to model this, but future studies should be conducted. As was mentioned earlier, it would be important to compare the findings of Lyft and Uber labor hours during the rain with taxi drivers to see if there is a difference in preferences.

Conclusion

The biggest take away from the two examples that have been discussed in this study is that economists often try to explain everyday events and things that the public takes for granted. They also appear to arrive at different results when studies are compared. As clearly shown in the paper, economic tenets exist in all aspects of life and that economic theories can be effectively used to deduce the best decisions that can be made in everyday occurrences. The inability to arrive at simple explanations for simple occurrences is ironic when one considers that the highly trained professionals are expected to formulate economic policies on a macro-economic level. The two questions are similar in the sense that they provide an economic rationality for why observable phenomena in the US are a certain way, but both differ for a variety of reasons. Firstly, the question about gift giving is related to anthropology as well as economics and is deeply concerned with utility. There is also the issue about outdoor appliances varying due to changing times where new products and appliances are only available to the luxury market until new and improved versions, or alternative outdoor appliances are developed. The issue of taxi drivers focuses solely on them balancing the risk and negative utility of staying on the job during poor weather conditions while still considering their need for income. Thus, the explanations are much simpler than economists pose them, which have led to over exaggeration as to why they occur. Therefore, it is safe to include that with an appropriate level of exposure, everyone would apply economic principles in their decision-making and not just economic naturalists.

Work Cited:

Camerer, C. et al. “Labor Supply of New York City Cabdrivers: One Day at a Time.” The Quarterly Journal of Economics 112.2 (1997): 407-441. Web

Fallis, Don. “The Economic Naturalist: In Search of Explanations for Everyday Enigmas.” Library Quarterly, no. 3, 2009, p. 379. EBSCOhost, 165.193.178.96/login?url=http%3a%2f%2fsearch.ebscohost.com%2flogin.aspx%3fdirect%3dtrue%26db%3dedsgao%26AN%3dedsgcl.206074504%26site%3deds-live.

Frank, Robert H. “A Less-Is-More Approach to Introductory Economics.” Journal of Economic Methodology, vol. 19, no. 3, Sept. 2012, pp. 193-198. EBSCOhost, doi:10.1080/1350178X.2012.714148.

Geerling, Wayne. “An Exploration of Robert Frank’s ‘The Economic Naturalist’ in the Classroom.” International Review of Economics Education, vol. 12, 01 Jan. 2013, pp. 48-59. EBSCOhost, doi:10.1016/j.iree.2013.04.008.

Swanson, Ana. “Why Cash Is The Worst Gift.” Washington Post. N.P., 2015. Web. 18 Nov. 2017

The Economist. “Cruising For Dollars.” Economist.com. Web. 18 Nov. 2017

Waldfogel, Joel. “The Deadweight Loss of Christmas: Comment.” American Economic Review 90.1 (1993): 319-324. Web

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