Tuesday, November 27, 2012

The theory of relativity in economics

Good morning economists. We have all heard of the saying that "one man's trash is another man's treasure." Or the more classic "the beauty is in the eye of the beholder". Today we will talk about the subjective valuation of goods and services.

Have you ever tried to buy a used car? The salesman will try to highlight all the extras that come with the car arguing that they normally cost hundreds of dollars to have them installed.

Now have you ever tried selling a used car? When you let the salesman know about all the extras, he is quick to dismiss them. In fact all of the salesmen that I talked to argue that the extras do not add to the real value of the car.
So I will rephrase the good old saying. It seems that "the value is in the eye of the beholder". Come to think of it. Is there such a thing as an objective valuation?

Have a valuable day!


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