the deep dives

the class asked for more. this is the more: micro one level deeper, macro from the manager's chair, and game theory with the full toolkit.

the law of demand gives direction. elasticity gives size.

price up, quantity demanded down, ceteris paribus: that much you know. the real business question is sensitivity: by how much does quantity move when the price does?

five forces behind the bend

one ratio, three zones

the takeaway for an owner

revenue = price × quantity. when price rises and quantity falls, the winner depends entirely on which side of 1 you sit.

know which side your product is on before you touch the price list.

how fast can sellers respond?

the bystander enters the math

buyers and sellers are not the only parties affected. social surplus = consumer surplus + producer surplus + bystander surplus.

charge the inelastic more. charge the elastic less.

IMAX front rows vs recliners. the same drug priced for Africa and for Europe. the principle is elasticity wearing a price tag.

and the enemy of discrimination is arbitrage: ethanol sold cheap as fuel resurfaces as alcohol; drugs bought in Africa reappear in Europe. your recommendation to stop the leak?

the full spectrum, side by side

left to right: firms shrink in number, market power grows, competition weakens, and control over price passes from the market to the firm.

when the free market misallocates

markets work only when competition exists, property rights are defined, information is complete, and no external costs or benefits leak out. break any one condition and the market stops maximising social welfare. externalities are the biggest single source of failure.

why nobody pays, and why everybody overuses

when one side knows more

six ways governments push back

governments can fix market failure. governments can also fail: corruption, bureaucracy, poor information, political pressure. neither side of this page is automatically the hero.

macro is not a spectator subject

which choice actually raises GDP?

buy shares of a listed company, build a new plant, or buy an existing factory. only one creates new production: GDP counts what gets made, not what changes hands. and yes, the software exported to a german client counts for india, not germany.

the harder follow-up: can GDP grow strongly while much of the country still struggles? hold that for the k-shaped case.

one number, five worried teams

finance worries about borrowing costs. procurement about inputs. marketing about pricing. HR about wages. the CEO about the margin that survives all four.

the pricing-power test: at 5% inflation, who protects margin better, apple or a local phone brand? and why does the answer come from tuesday's elasticity class?

liquidity is a tap, not a switch

and in reverse: too little liquidity, spending slows, growth suffers. the repo rate is the RBI lending short-term to banks against government securities. the other dials: CRR, SLR, open market operations.

rates rise. now what?

the developer rethinks the launch, the loan, maybe the land bank. the buyer's EMI quietly grows and the booking gets postponed. and the automaker, whose customers buy on loans, prays for cheap money harder than almost anyone.

the government's two levers

how much it collects, and how much it spends. push spending above collection and you get expansionary policy, and a fiscal deficit. contractionary is the reverse.

the argument worth having: is a deficit necessarily bad? borrowing to build highways is not the same as borrowing to pay salaries.

four seasons, four playbooks

cyclicals ride the wave: autos, real estate, luxury, travel, construction. defensives sleep through it: healthcare, staples, utilities.

strategy is interdependence

no firm acts in a vacuum: A's outcome depends on B's move, and B is thinking the same about A. and outcomes aren't only victories. sometimes the destination is cooperation, or a stable truce: live and let live.

two firms, three moves each

payoffs as (A, B). start by hunting for a move that is always worse: will B ever play right? centre beats right in every row. eliminate it.

logic removes the moves one by one

right goes first. with right gone, down is dominated for A. with down gone, left is dominated for B. with left gone, up falls. one cell survives: (3, 3). equilibrium, reached by elimination alone.

two hunters, one choice

hunt the stag together and split 6 units of meat. hunt hares alone and take 1 each. the stag cannot be caught alone: choosing it is a bet that the other hunter chose it too.

no dominated strategy this time

elimination cannot solve this: nothing is strictly dominated. two stable outcomes exist, and trust decides which one you live in.

stable is not the same as good

a nash equilibrium is a set of strategies where no player gains by changing theirs alone. stag-stag and hare-hare are both nash equilibria. so is both suspects confessing. stability tells you where things settle, not whether you should be happy about it.