undercover economist

Introduction

• How economists view the world?

• Economist can tell you What, How and why?

• Book equipped you with investigation tools to detect and

make you an undercover economist.

1. Who pays for your coffee?

1. Who Pays for

your coffee?

• Why things are expensive?

• Pop corn at theatre

• Apartments at good locations

• Coffee at railway platforms

• Scarcity

• Natural

• Artificial through legislation,

regulation etc.

• Location of coffee bar.

• Example: Starbucks

• Scarcity power shifts from one

group to other.

• Agricultural land

• Meadow land

• Scrub land

• Marginal land is of central

importance

2. What Supermarket don’t want you to know.

What Supermarkets Don’t

Want You to Know

• Marketing in supermarkets

• Costa Coffee’s Price-Targeting

• Are you willing to pay more?

• Its time for a reality check

• How good or bad is Price-targeting?

What Supermarkets Don’t

Want You to Know

no frills

no frills

Mix them together—I feel special

Use different powder— I feel very special

Make it huge—I feel greedy

Are you willing to pay more?

3. Perfect markets and the ‘World of Truth’

Perfect Markets and the “World

of Truth”

• Prices are optional, which means

they reveal information

• Perfect markets: The truth, the

whole truth, and nothing but the

truth

• Life without markets

• The signalling function of prices

• Can we handle the truth?

• Can we enlist markets to help

with fairness?

4. Cross-town traffic.

Cross-town Traffic

• Are we paying the tax for the right reasons?

• Perfect market and conscience

• Externality charges and moral being of

society

• How much your life is worth?

• Is environment important?

• Being POSITIVE

5. The inside story.

The inside story

• Peach or Lemon? – George Akerloff

• Why it is not possible to find a good second hand car

• One negotiator knows too much and the other too little

• Why banks have impressive buildings?

• Making lemonade

6. Rational Insanity.

6. Rational Insanity

• Choose where to invest based on rationality

• Stock market and Interest rate relationship

• A paradox:

More rational erratic behavior

• Stock Market – Random walk

• Grolsh beer keeps market nearly - random

7. The men who knew the value of nothing.

The Men Who Knew

the Value of Nothing

• Evolution of Game theory

• The Vickrey auction

• Why use an auction?

• Auction is like Von Neuman’s game of poker

8. Why poor countries are poor?

Why Poor Countries are Poor

e.g. Cameroon

• The missing jigsaw piece – Where are

the increasing returns?

• A theory of government banditry

• Bandits, bandits everywhere

• Institutions matter

• The plot thickens—incentives and

development in Nepal

• Is there a chance for development?

- Kleptocracy at the top stunts the

growth of poor countries

9. Beer, Fries and globalization

Beer, fries and

globalization

Starts with a peek into the histories of Antwerp and Bruges suggest that if you want to be rich, it is a good idea to forge links with the rest of the world.

Two types of economy:

1. Self sufficiency and export oriented.

2. Which is better closed or a liberal economy?

Globalization is green:

1. Race to the bottom, pollution moves from rich to the poor.

2. Physically moving goods causes pollution.

3. Trade promotes economic growth but also hurts the economy.

10. How China grew rich?

How China grew Rich?

• Good education system

• One child policy- so women can work

• More middle aged people with good settings

• Mao’s focus on agriculture and special agricultural techniques

• Resulted in a large scale famine

• Deng Xiaoping in 1978

• Foreign investments and SEZs like Shenzen

• Proximity to Hong Kong and Taiwan

What we learnt?

• Demand – Supply interactions

• Market Failures

• Externalities

• Globalization

• International Trade

• Comparative advantage

Thank You