Estimated Read Time: 4 minutes and 12 seconds

This Week’s Issue

• Quick Intro

• The Instant Economist Simplified

  • Supply and Demand

  • Price Floors and Ceilings

• Masterclass: Negotiation

• Suggested Readings

• Next Week…

A Quick Intro

Hey ya’ll, thanks for popping in to read the third edition of Grade K MBA! This week I want to get back on track with some economic concepts from “The Instant Economist”, but I also want to sprinkle in some fun. That’s why this week’s third section is the distilled learnings I received from watching Chris Voss’ Masterclass on negotiation. Hopefully this mixed format of “core concepts in business/economics” mixed with “key learnings from thing I read/watched” is something that resonates with you!

The Instant Economist Simplified (Part 2)

Supply and Demand

The relationship between supply and demand is like a seesaw. People buy and sell things at what we call a "market," where they all work together.

The word "supply" means the amount of something that is available. Let's say you have a lemonade stand. You have enough lemonade if you can make 100 cups of it every day. If it's really hot and you can make more lemonade, your stock goes up. But your supply goes down if you run out of oranges and can only make 50 cups.

Now, the word "demand" means how badly people want something. A lot of people might want your lemonade on a hot summer day. That is a lot of interest. But less people will want it if it's cold and wet. Not many people want that.

It is very important to look at where supply and demand meet. That's what makes things cost what they do. If you have a lot of lemonade but not many people want it (low demand), you might need to lower your price to sell it all. But you could raise your price if you don't have much lemonade (low supply) and a lot of people want it (high demand).

So, sometimes things cost more or less than they should. It depends on how much is available and how much people want it. This makes sure that everyone gets what they need at a good price.

Price Floors and Ceilings

When we set the price for something, price floors and ceilings are like imaginary lines that can't be crossed. Think of them as the floor and roof of your bedroom. You can only go so high or so low.

The lowest price you can set is the price floor. Let's go back to where we were selling lemonade. A price floor is when your parents tell you that you have to sell each cup of lemonade for at least $1. Even if you wanted to, you couldn't sell it for 50 cents. This might help you pay your costs and make a little money, but if it's too high, people might not want to buy your lemonade and you might have a lot left over.

A price limit, on the other hand, is the most you can charge. Imagine that the rule in your neighborhood is that you can't sell a cup of lemonade for more than $2. That's a limit on the price. They do this so that everyone can buy lemonade for a low price. But if it takes a lot to make the lemonade, you might not make much money or might not even want to sell it.

So, price floors and price ceilings are rules that say how much something can be sold for. They are there to keep things fair and cheap, but they also need to be set wisely or they could make things hard for both sellers and buyers.

Masterclass: Negotiation

Negotiation skills are not just for business tycoons and FBI agents; they are essential tools we all need to navigate daily life. In his Masterclass, former FBI hostage negotiator Chris Voss presents powerful tactics for negotiation that can transform our interactions. Here's a rundown of the ten key lessons from his class.

1. Embrace Empathy: Empathy, according to Voss, is crucial. Understanding the other person's viewpoint lays the foundation for effective communication. Empathy doesn't mean agreement, but it does create a platform for dialogue.

2. Mirroring: Mirroring is a simple technique where you repeat the last few words spoken by the other person. This provokes further explanation and fosters deeper understanding.

3. Strive for 'That's Right': When the other party says 'that's right', it means they feel comprehended. This often leads to a more cooperative negotiation, so aim for this response.

4. Tactical Empathy: This is about comprehending the feelings and mindset of another. Understanding what's behind those feelings allows you to increase your influence throughout the conversation.

5. Labeling: Labeling is the act of identifying and vocalizing the other person's emotional state, e.g., "It seems like you're upset". It validates their feelings, builds rapport, and keeps the conversation flowing.

6. Calibrated Questions: These are open-ended questions aimed at subtly steering the conversation while letting the other party feel in control. An example is, "How am I supposed to do that?"

7. The Rule of Three: If you can get the other party to agree to the same thing three times in one conversation, it usually solidifies their commitment.

8. Bending Reality with Prospect Theory: People prefer sure things over probabilities and will take more risks to avoid a loss than to achieve a gain. Recognizing these tendencies can make you a more effective negotiator.

9. The Accusation Audit: Start negotiations by defusing potential negatives. Address any accusations you expect the other party to make; this shows understanding and removes possible friction points.

10. The Black Swan Theory: Black swans are unforeseen pieces of information that can change the course of a negotiation. Active listening is vital to identify these potential game-changers.

Applying these tips in your daily interactions can significantly improve your outcomes in any negotiation situation. Chris Voss' Masterclass is a goldmine of insights for anyone looking to sharpen their negotiation skills. Whether you’re negotiating a business deal or deciding on a family dinner, these lessons can offer a better way forward.

Remember, effective negotiation isn't about winning or losing; it's about collaboration, understanding, and finding a path that respects both parties' needs and desires.

Suggested Reading

• We have a blog! - https://gradekmba.medium.com/

• The Instant Economist

• Never Split the Difference: Negotiating as if Your Life Depended on It

What to Expect Next Week

I know the economic theory isn’t always a blast, but that’s why I am doing my best to pepper in insights from other interesting resources. Next week we will take a break, once again, from “The Instant Economist” and instead tackle new case studies and lessons learned from recent issues of The Harvard Business Review and Bloomberg.

Until Next Time

Thank you so much for giving this issue of Grade K MBA a read. I hope this edition was interesting and engaging for you.

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Be Good!

~Dan