 The standard theory of supply and demand does not apply to a concert, shown in the photo. / Korea Times file  |
By Noh Hyun-gi
The word economics may intimidate readers. In reality, the field of study stems from basic human behavior. Fortunately, many noteworthy economics books have already surfaced this year in the murky sea of entrepreneur guides and cookie cutter self-help books. Inventory is a headache for anyone who supplies goods and services but it presents a unique problem in the art world as Kim Hun-min and Park Jeong-ho demonstrate in “An Economist’s Humanities Books.” While the supply of a regular commodity can change in response to demand, such flexibility is infeasible for concerts. Show organizers must set the price and venue (number of available seats) with no exact knowledge of demand. So even if not enough people purchase tickets, one can’t transfer the show to a smaller setting. On the other hand, even if the concert is so popular and tickets are selling out fast, the organizer cannot raise the price to maximize profit. The authors present clever strategies that counter this problem. For example, there are daily sales booths in the United States where one can buy left-over tickets for shows on that day for a reduced price but with random seating.
The authors, who are both researchers at the Korea Development Institute, also managed to explain elasticity through art. Price elasticity measures how much the supply or demand of a commodity shifts in response to a change in price. Recalling the battle to bring back looted royal books from the Joseon Kingdom (1392 -1910) from France, Kim and Park explain that historical relics have a price elasticity of supply of zero. No matter how many parties desire a masterpiece for an astronomical amount of money, the supply — in this case the number of the royal books — remains unchanged. Though some of the examples in the book are sometimes a little far-fetched, for the most part the uniform tone of the writing keeps the reader focused and entertained.
Kim Tae-gyu, a business reporter at The Korea Times, spots economics at work in our daily lives in “Slick Economics.” Kim brings out essential concepts behind economics as asymmetry of information in ordinary events like a visit to the doctor. How often do we blindly trust a doctors’ prognoses and forego fact checking because they are “professionals?” Kim says all you need is a doctor saying “Your child’s growth rate is only 70 percent of his peers. If you leave things as they are, he might remain much smaller than his friends.” Then the panicked parents put the son through physical therapy and even hormonal treatment, only to be saved when the doctor concludes, after some months, he is now on par with other kids. But perhaps the child in question was just growing a bit slower. Exploitation of asymmetry of information, as seen in this example, can lead to market failure in the economy.
Korea’s unemployment rate is currently 3 percent, a surprisingly low figure. As Kim puts it, it is rather challenging to be labeled unemployed — one has be over 15, economically active, and jobless. If one was paid for at least one hour of labor, he is employed. In addition, one has to have been willing to take a hypothetical job the previous week to be economically active. Every month, employees at Statistics Korea survey a sample of 34,500 households, but after this filtering, not much is left. On top of this, Kim notes that many jobless Koreans, who are too self-aware, may falsely report that they are not looking for work.
Another seasoned reporter, Gwak Jeong-su, from the Hankyoreh, a liberal daily, has written “Chaebol’s Turf.” Exposing the unsustainable relationship between big players and their subcontractor, the book hovers over the unsolved of dilemma between free market and government intervention.
Companies like Samsung Electronics do not make every part in their final products. They buy parts from a number of subcontractors. According to a number of interviews and classified data the author compiled, conglomerates forcefully cut the buying prices. “The annual target reduction rate for goods from subcontractors is at least 20 percent,” according to a manager who coordinates between large firms and production plants. The book discloses that if a subcontractor is making a profit above just 1 percent, the big firms will impose an additional reduction. To keep a close eye on this, employees of conglomerate-affiliated firms even raid the plants.
Such tyranny is carried out knowingly. Gwak cites a document from Samsung Electronics’ LCD Division which reads “Subcontractors have no capacity for price reduction after executing efforts which include layoffs, wage cuts, and welfare benefits reduction.” Six months later, the division imposed a 5.5 percent price reduction on the subcontractors that make back light units. In addition to such cases, Gwak reveals jaw-dropping ugliness such as patent piracy. While the book goes on to chastise the current administration for failing to secure win-win growth in the power disparity, it falls short of providing practical suggestions — proof that nurturing an economy is easier said than done.
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