April 8, 2010

A problem of economics

Last week was a perfect example of an economic problem. My friend, David, wanted to get out of vacuuming my room, a task he had to perform as part of a contract because I had won his services in an auction. He wanted to get out of the services, and instead wanted to compensate me $6 in order to not vacuum at all.

I countered with an offer of $3 paid to me, as well as one of the two vacuuming tasks he was obligated to perform. He did not want this offer, but I preferred it to receiving $6, and he preferred it to the $20 I set as the threshold for not receiving any vacuuming services.

In essence, I valued his one vacuuming at $3 and his second one at $0. I wanted the room vacuumed, and that was worth $17 to me. That is, I wanted to be compensated for the loss of the service and for the price of actually having to vacuum the room.

Of course, despite another offer for a third friend, Jusvin, to vacuum the room for $17 and for David to pay me $3, David ended up accepting my first offer. Thus we all rationally reached a beneficial conclusion for everyone. Except for Jusvin.

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