The Undercover Economist by Tim Halford

The Undercover Economist

Suggests three key categories to analyze by:

• Scarcity Power (uniqueness and optionally)
• Externalities
• Imperfect or Asymmetrical information

Examples

· Scarcity Power- Cappuccino café – who makes a profit – mostly the landlord (and coffee company if it has a brand that enable coffee sales at a premium)

· Starbuck usings its different products to test and learn product elasticity

· Supermarket pricing

· Externalities like the cost of pollution not included in the cost of the gasoline or the cost of the roads. Congestion charges are good. But use it for the externalities directly and base it on the cost of these.

Increased Efficiency is when something improves for one person without getting any worse for any others.

Pricing is a critical tool for communicating information

Fairness is important but not an capitalist principle

Sales Taxes reduce business and people don’t buy who might have at the price less the sales tax and so no tax is raised also. Ideally taxes should not change behavior. Lump sum taxation often does this although is impractical to implement

Looking at Healthcare (UK vs US)

• US govenerment sames more per person than UK government, but in the UK you get free healthcare. Obviously Bad. UK and US system have similar outcomes
• Looking at the 3 categories

Lack of information about Quality has key impact on the market

• Read the Lemons the second had car market
  

Conclusion

Overall very interesting book. On doing some Web research it appears that few of the thoughts and examples are new.