The Hindu Business Line : Not a zero-sum game

You may be aware of the business practice of most auto drivers in Chennai; you have to pay Rs 100 for a “normal” fare that ranges between Rs 75 and Rs 80. Given this, it was surprising to see my friend get off the auto the other day and thank the driver. It is not as if he paid a reasonable fare; the driver demanded Rs 75 against a “normal” fare of Rs 50. Was my friend merely being polite to the driver? Apparently not. The auto driver was the only person willing to take him to his destination; others simply refused to drive to that part of the city where my friend wanted to go. What has this got to do with economics? A lot, as it explains the reason why global trade takes place. Here is how.

A ‘win-win’ situation

My friend had a choice. He would have waited and bargained with another auto driver. But he had to reach his destination fast. Time was of essence and this auto driver obliged, for a price. It was essentially a win-win situation. My friend reached his destination on time and the auto driver received Rs 25 more. That is why this economic transaction took place.

This understanding is important. For, many are of the opinion that a transaction takes place only if one person benefits at the expense of the other (called zero-sum game in economics).

Think about it. Would you enter into a commercial transaction that hurts you? If not, why would another person do so if it hurts him? It is the same logic that engines global trade.

North Americans may buy Indian knitwear not because it is the cheapest but because they want it. Put differently, North Americans want the knitwear more than they want dollars and we want dollars more than we need the knitwear. So, trade takes place. There is, indeed, so much economic meaning to the “Thank You” that my friend said to the auto driver.

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