SHRI DHARMASTHALA MANJUNATHESHWARA INSTITUTE FOR MANAGEMENT DEVELOPMENT

BOOK REVIEW

The Armchair Economist

By Steven E Landsburg

BY:

VARUN KUMAR (12175) SHREETHA T.S. (12176) VINAY A HAMASAGAR (12177) VINAY PRAKASH (12178) VISHNU PRASAD (12179) YUGHANDARA RAMESH M (12180) ASHISH JAIN (12181)

SUBMITTED TO: Dr. MIHIR K MAHAPATRA

The Armchair Economist 2012-14

TABLE OF CONTENTS
PREFACE ............................................................................................................................................... 2 WHAT LIFE IS ALL ABOUT? ............................................................................................................. 3 GOOD AND EVIL ................................................................................................................................. 5 HOW TO READ THE NEWS ................................................................................................................ 9 HOW MARKETS WORK .......................................................................................................................... 12 THE PITFALLS OF SCIENCE ............................................................................................................ 15 THE PITFALLS OF RELIGION .......................................................................................................... 15 CONCLUSION ..................................................................................................................................... 16

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PREFACE
The Armchair Economist: Economics and Everyday Life is a book written by noted professor of Economics, Sir Steven Landsburg. The book is a collection of everyday examples illustrating important economic theories in a lucid language for easy understanding of the concepts even by a non-economics background reader. The underlying theme of the book, as Landsburg states on the first page, is that most of economics can be summarized in four words: People respond to incentives. In the first few chapters, Author tried to explain the Responsiveness towards Incentives with quite a many examples such as Accidents, safety legislations, etc. He also tried to explain the rationality issues with the economists slogan-De gustibus nonest disputandumthere's no accounting for tastes. With this observation, Landsburg discusses some unexpected effects of various policies.

Part Two entitled "Good and Evil" provides some insight as to how the pure Economists think. Dr. Landsburg correctly points out that public policy-making is inherently flawed because it is not based on any fundamental principles relating to what constitutes good or fair.

Dr. Landsburg also explains the Coase Theorem of property rights using the example of a doctor whose patients are upset by the noisy candy-making machines that are operated in the building next door.

The rest of the book includes expositions on a wide range of topics, including budget deficit, unemployment, economic growth, and cost-benefit analysis. The group enjoyed the book because it is very easy to understand and the authors way of explaining the things is quite comprehendible. The author has rightly pointed in one of the chapters that the fact that you have chosen to read this book is a sign that you have probably overvalued it in relation to all the other books you could have read instead. Landsburg has written a very clear introduction to the thinking of a particular kind of economist: those of the so-called Chicago school of which he is himself a member. He has pointed out that as Economics students, the group used to answer almost all problems

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encountered by the World at that time by Demand and Supply, but he realized later, with experience, that the problems were much more complex. The book tries to explain such issues in a comprehendible manner and hence, we recommend this book to all.

THE ARMCHAIR ECONOMIST: ECONOMICS AND EVERYDAY LIFE

The Author tried to amalgamate the general concepts of Economics with the daily activities. Heres a brief summary of, what the author wants to express and what we learnt.

WHAT LIFE IS ALL ABOUT?

The first chapter is about the critical role played by incentives in economic behavior. Dr. Landsburg explains that the introduction of a regulation causes a consumer to change his behavior. He says that economics can be summarized as people respond to incentives. The author says that if the prices are allowed to rise freely, customers will reduce their consumption. It clearly depicts the relationship between quantity demanded and price of the product as explained by Law of Demand. As per this principle, the incentives provided to the drivers in the form of seat-belts, padded dashboards, collapsible steering columns, dualbreaking systems and penetration-resistant windshield did not result in a decline in vehicular accident-related deaths as lawmakers had anticipated. While the use of safety belts helped to prevent some deaths, this phenomenon was offset by the propensity of drivers to drive less carefully because the incentive to drive with prudence in the absence of seatbelt protection had disappeared.

The seat-belt regulation did reduce the number of driver deaths by making it easier to survive an accident. But it also increased the number of driver deaths due to reckless behavior and the number of pedestrian deaths. There were more accidents and fewer driver deaths per accident, but the total number of driver deaths remained essentially unchanged. At the end of the day, incentives do matter. One cannot underestimate the power of incentives

Chapter Two explores talks about rational chaos. For example, why don't rock concert promoters raise ticket prices in the face of a sellout? The answer here is simple. Rock concert tickets sell out in advance even if the promoters increase the price of the tickets. But the

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promoters dont increase the price. The rationality of this decision is argued and the probable reasons for not increasing the ticket prices are as follows: The long queues for the concert are a good advertisement to the show. Therefore, the promoters do not increase the ticket price. But the author argues that the high selling price of the tickets is also a good advertisement to the rock shows. The other reason for not increasing the ticket prices is that the promoters want a teenage audience who buy rock memorabilia whereas adults dont buy those. Therefore it is necessary to keep the ticket prices affordable. Describing the decisions made by individuals as rational and finding the reasons why the particular behavior is rational is one of the basic principles in microeconomics. In Chapter three, Truth or consequences, The author speaks about how insurance premium rates are conferred based on consumers living habits and how cautious behaviour helps consumers gain from the insurance policies but study reveals that insured people are more reckless just as safety belts induces drivers to be more reckless in their driving. In recent years, economists have discovered that, contrary to all intuition, there are a fantastic number of mechanisms that can often induce people to reveal everything they know. The following are the two perfect examples: There is a class of logic puzzles where the speaker visits an island populated entirely by liars and truth tellers. Liars always lie and truth tellers always tell the truth. Unfortunately, the two are indistinguishable. The problem is usually to draw some inference from the utterances of various islanders or to formulate a question that will elicit some hidden information. The simplest problem is: When you meet an islander, what single question enables you to identify whether he is a liar? "Are you a liar?" doesn't work, because truth tellers and liars both answer "No." A common solution is to ask, "How much is two plus two?" In Joseph Conrad's novel Typhoon, a number of sailors store gold coins in private boxes kept in the ship's safe. The ship hits stormy weather, the boxes break open, and the coins are hopelessly mixed. Each sailor knows how many coins he started with, but nobody knows what anybody else started with. The captain's problem is to return the correct number of coins to each sailor. Have each sailor write down the number of coins he is entitled to. Collect the papers and distribute the coins. Announce in advance that if the numbers on the papers don't add up to the correct total, you will throw all of the coins overboard. It turns out that even when a decision maker has no information at all he can frequently design a mechanism that elicits absolute truth from all concerned.

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In Chapter four, the author explains this concept with the tale of two cities. The cities included are Cleanstown and Grimyville. Cleanstown has pristine air while Grimyville air is affected because of the local steel factory. The only differing factor between the two is the life expectancy in Grimyville is 10 years less than that of Cleanstown. A house that rents for $10,000 a year in Cleanstown can be had for $5,000 in Grimyville. If it weren't, people would leave Grimyville and rents would fall even further. The Grimyville Council passed a Clean Air Act that requires Grimyville Steel to adopt extensive antipollution measures. Soon the air in Grimyville will be as pure as the purest air in Cleanstown. And when that happens, the rents in Grimyville will rise to Cleanstown levels. But as per the author, this legislation does little good to the Grimyville residents. If they'd wanted to live in Cleanstown, they could have moved there long ago but the residents were more concerned about the rents than clean air. The rents would increase because of the legislation thereby making the residents of Grimyville worse off than before. Earlier they were indifferent between the two cities but now the act has uprooted the Indifference Principle running its smooth course in these cities. The only people who stand to gain from this entire affair are the property owners of Grimyville, who can now command higher rents than they did before. The Clean Air Act is equivalent to a tax on Grimyville Steel with the proceeds distributed entirely to Grimyville landowners. In Chapter five, Steven E. Landsburg mentions about the students learning behaviour and introducing fictitious business as a computer game. In this game of economic life, success is measured in the same way economists measure success in the Game of Life Itself, not by asset holdings or productivity but by the amount of fun you have along the way. Students would learn a lot from this game. They would learn that your success in life is measured not by comparison with others' accomplishments but by your private satisfaction with your own. They would learn that in the Game of Life there can be many winners, and one player's triumphs need not diminish anybody else's. They would learn that hard work has its rewards, but that it also takes time away from other activities, and that different people will make different judgments about what to strive for. Most important, they would learn that consumption and leisure, not accumulation and hard work, are what Life is really all about.

GOOD AND EVIL

Author starts the Pitfalls of Democracy with the fairness of paying taxes and moral philosophy followed by policy analysis. To defend a policy he suggests that our task is not to demonstrate that it does some good, but that it does more good than harm. In the real world any meaningful policy proposal must entail a huge number of trade-offs involving

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innumerable gains and losses to innumerable people. For policy makers, it is easy making long lists of pros and cons, but they forget that we must decide how many cons it takes to outweigh a particular pro. He later admits that he do not yet know what justice is but believes that economics illuminates the possibilities. He feels Majority is one of the approaches to justice and later on views the philosophy of rights in economics point of view by taking the concept of measuring the happiness. In Chapter seven, the author states what economists mean when they talk about efficiency. If it isn't clear to you that rescuing the dollar is inefficient, then you and I are using the word efficiency in different ways. Speaking about taxes, the most obvious sense in which taxes are bad it that its not fun to pay them. But this is not conclusive; one could equally well argue that taxes are good because its great fun to collect them. As each tax dollar paid is a tax dollar collected, the accounting so far shows that the good exactly cancels out the bad. He also states that economists agree that taxes are bad because they are avoided, which results in economic losses. Taxes nearly always do more harm than good. To collect a dollar, you need to take someone's dollar; almost inevitably, in the process, you discourage somebody else from buying. When a policy does more bad than good, then we call it inefficient and tend to deplore it. This mode of analysis is called characteristic of economists, who doesnt consider ledger and accounts but considers only the impact on individuals, whether they gain or loss. The logic of efficiency and why economists tend to favour it is discussed as it is the only alternative to inefficiency and mentioned that general level of prices is determined by supply of money. In Chapter eight, Steven compares Darwinian evolution, advancing the species biologically by allowing only the fittest to survive, with Adam Smiths economic actor who intends only his own gain but is nevertheless led "by an invisible hand to promote an end which was no part of his intention," that end being the welfare of society, which economists call efficiency.

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He speaks about how an economist describes inefficient outcome with an example of comparing birds of paradise with students and employers with female birds. Rational behaviour of humans is compared with herd of cows, as it is not a vaccine to inefficiency. Invisible hand theorem is now called the First Fundamental Theorem of Welfare Economics, and it states Competitive markets allocate resources efficiently. The Second Fundamental theorem says No matter which of the many efficient allocations you want to achieve, you can always achieve it by first redistributing income in an appropriate way and then letting competitive markets function freely. The critical feature in the formulations and proofs of these theorems is the existence of market prices. Without prices, there is no reason to expect efficient outcomes. This was explained considering the czar of American culture (wheat market). The Invisible Hand theorem tells us that if we seek the source of inefficiency, we should look for markets that are missing, but not for markets that exist. We should look for goods that are not priced, which often means that we should look for goods that are not owned.

In Chapter nine, the author speaks about the concept of Economics in the Courtroom. In law and economics, the Coase theorem, attributed to Ronald Coase, describes the economic efficiency of an economic allocation or outcome in the presence of externalities. The theorem states that if trade in an externality is possible and there are no transactions costs, bargaining will lead to an efficient outcome regardless of the initial allocation of property rights. In practice, obstacles to bargaining or poorly defined property rights can prevent Coasian bargaining.

Dr. Landsburg explains the Coase Theorem of property rights using the example of a doctor whose patients are upset by the noisy candy-making machines that are operated in the building next door. Bridgman made candy in the kitchen of his London home. In 1879, Dr. Sturges built a new consulting room at the end of his garden, adjacent to Bridgman's kitchen. Only after the construction was complete did the doctor discover that Bridgman's machinery made noiseso much noise that the consulting room was unusable. Sturges brought suit in an attempt to shut down Bridgman's business. But, the judge ruled for Sturges. When

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negotiations between the doctor and the candy-maker are possible, it is shown that resources are most efficiently allocated when they are directed to their most profitable use. A judge is unable to identify and thus direct resources to their most profitable use. This can only be decided by the owners of the resources. In the event that the doctor's business is more profitable than making candy, the doctor should pay the candy-maker a fee that is sufficiently large enough to motivate him to cease making candy and allow the doctor to enjoy a prosperous practice.Economists are usually far more concerned about the allocation of resources than they are about transfers of income between individuals. That is, it does not affect what gets produced, or the means of production.

There is a flip side to the Coase theorem, which can be dealt as : When circumstances prevent negotiations, entitlementsliability rules, property rights, and so forthdo matter. For certain cases the court's decision matters, and the efficient decision depends on the particulars of the case.

Dr. Landsburg continues to argue in this chapter on the benefits of the price system. He presents a cogent argument as to how signals by consumers and producers are best reflected in the price-setting mechanism of a free market. Adam Smith would be very happy with the explanation of the invisible hand concept presented herein. His conclusion is that inefficiency exists when markets are missing. This is a truism for economists. Unfortunately, the merits of a free-market system in which prices convey information about wants and needs is an idea that is woefully misunderstood by the public at large.

Consider air pollution. If a market existed for clean air, local residents and polluting factories could set the appropriate price for clean air and the optimal amount to be maintained. Because this market does not exist, the exact benefits and costs associated with clean air cannot be assessed and regulation is promulgated to provide for less pollution. Unfortunately, as Dr. Landsburg explains, regulation further distorts the supply and demand equation, and the result is a wholly unsatisfactory one for all parties.

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HOW TO READ THE NEWS

In Chapter ten, the author speaks about choosing sides in the drug war. Richard J. Dennis is chief adviser to the Drug Policy Foundation in Washington, D.C. He is also a commodities trader; Dennis's article entitled "The Economics of Legalizing Drugs." Principle 1: Tax revenues are not a net benefit, and a reduction in tax revenues is not a net cost Dennis says if the drugs were legalised then government would earn around $13 billion, but tax revenue is the money from ones pocket into anothers. There is nothing like gain or loss, so the tax revenue is neither a net benefit nor a net cost. Principle 2: A cost is a cost no matter who bears it Cost-benefit analysis makes no difference; it simply totals all of the good that arises from an action and contrasts it with the bad. If a drug dealer is unhappy or unproductive when he is in jail, his losses in that dimension are as much social costs as the jailer's salary and the cost of prison construction. Principle 3: A good is a good no matter who owns it When a TV is stolen by a thief it has only moved from one place to another and still remains a source of entertainment whether the recipient is a thief or anyone else. Thieves do have social costs time and energy and their productive capacity. Principle 4: Voluntary consumption is a good thing Assumption Legalisation of drugs lower prices and hence more consumers. Consumers are only reaping a benefit and not bearing a cost. Dennis counts this as a cost of legalisation. Consumers surplus- maximum you are prepared to pay the amount you actually paid in the marketplace. Principle 5: Dont double count The Economics of legalising drugs failed in 2 super principles Only Individuals matter and all individuals matter equally. So the government revenue by legalising drugs

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cannot be counted as the government is not an individual. Price changes are often resulting from changes in technology or legal environment. In Chapter eleven, the author talks about the myths of deficit. The myths about the deficit underlie three grand misconceptions. One is that the numbers that are officially reported and widely analyzed are actually reflective of anything approaching economic reality. Another is that government deficits clearly cause high interest rates via simplistic mechanisms that people think they understand. A third is that certain identifiable groups ("future generations," the private sector generally, the export industry in particular) are clearly and unambiguously hurt by deficits. The parable of the purchase agent of making shopping decisions on your behalf helps us understand that when you assume a debt, the costs and the benefits cancel each other out exactly. The parable used does not take into account other factors such as death of the individual in six months time and consumer preferences on being taxed in lump sum or in instalments which helps equate the deductions and does not pinch the consumers disposable income. It demonstrates that deficits, in and of themselves, are no better or worse than taxation and makes it plausible that our primary concern should be with the level and composition of government spending, rather than with how that spending is financed. Myths about what the numbers mean: The author Landsburg clears speaks about how the various errors occur while calculating debt by the government and how the government overestimates the deficits by considering benefits as transfer of payment and not taking into account current inflation rates. Myths about interest rates: The author talks about flow of cash inside the economy and how it circulates among various individuals and also how government has to lend money at the same rate at which it borrows from individuals. Myths about the burden of the debt: The author specifies how if we make a one-dollar debt payment today, we can indeed free our grandchildren from a two-dollar debt burden tomorrow, but only at a cost. He also mentions about how if purchased excessively by government will reduce the availability to the private sector and lastly this affects the economys export which consumers draw an analogy by saying that interest rate increase leads to exchange rate decrease. In Chapter twelve, the author compares economy with energy. Great depression and its impact by reducing lifetime consumption and it forces you to adopt an inferior pattern of consumption, alternating feast with famine instead of spreading your good and bad fortunes more evenly across your life. Mr. Landsburg very creatively mocks at the letter received from Mr. Rohatyn a prominent financier, chairman of New York's Municipal Assistance Corporation, and a member of President Clinton's circle of advisers to New York times which defies basic economic principles such as value of money does not remain constant, income tax does create an impact, borrow to finance losses that have already been incurred by repaying in equal instalments. In general the consumer behaviour of reducing the impact by spreading over a larger amount of time the impact during economic crisis is what Landsburg

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addresses. The Rohatyn Plan is a recipe for a severe recession, justified by an invented principle that implies that recessions are desirable. Another letter speaks about Mr. Ronald Breslow New York, Dec. 18, 1991 who is a professor of chemistry at Columbia University and a winner of the National Medal of Science who needs to focus on circulation of economic resources within the economy. The other articles mentioned in this chapter also pay minute attentions to aspects such as economies of scale, consumer surplus, control leads to reaching market equilibrium, false monopoly and so on. The most ironic example which addresses that interest in loan is a form of economic gift defies the very basics of economics and how it functions in the economy. In How Statistics lie, the author wants to convey that although statistics are used very much in economics, but people make mistakes in interpreting the statistics. The author takes various examples to make us understand how statistics can mislead us. For instance, he writes about unemployment. According to him, when the unemployment statistics is measured by surveying the people on a given day, and asking them how long they have been unemployed, and averaging the responses, it is possible that people who are unemployed for long period are very likely to be unemployed on that day and the people who are unemployed for short period are very unlikely to be unemployed on that day, so the final statistics about unemployment will indicate something different as compared to the reality. Author, thus wants to prove that although statistics do not lie, but the result that it indicates may not be completely true. Similarly, he talks about Gross National Product and writes that it is not the exact measure of countries well-being as it takes into account all goods and services produced in the economy but it does not consider many goods and services that are produced in household. For example, if you pay a maid to wash your dishes GNP reflects it, but if you wash it yourself it does not do so. He believes that there is no single way to construct such measures which is not biased in one way or the other. Finally, he says that as an economist we should try to identify these errors and correct them as best as we can. In chapter fourteen, the author tells us that as an economist we need to develop the habit of looking deep into various policies prevailing in markets and indulge ourselves in it. He further writes that there are always two sides of coin and as an economist we should carefully analyse both the sides of coin. He further discusses whether quality can be related to profit or not, in order to make us understand how to analyse both sides of coin. He argues that although there are many people willing to pay more for better, but there are also many other people who prefer to pay less for inferior quality products. It is beneficial to sacrifice quality in exchange of keeping costs down in which case the profit will not be affected, but you

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cannot sacrifice quality without keeping costs down. Further he talks whether literacy is a good thing or not. He says that even if it is a good thing but we cannot decide it is good till which extent. If literacy is too much then the cost of education will go high and so it might be possible that people will get good returns if they spend these money somewhere else. So according to him, we should encourage further literacy until the additional costs begin to exceed the additional benefits. He also mentions that it is not easy to find answers to questions which include to which extent solution to any problem is correct. But as an economist we should always try to do cost benefit analysis of various policies. In Some modest proposals: The End of Bipartisanship, the author talks about how prices are decided and the price discrimination prevailing in today competitive markets. He also mentions bipartisanship, whereby he writes that when an industry is dominated by two highly profitable firms, either there is a price war or there is secret agreement between them. This thing is applicable in only duopoly and to some extent in oligopoly markets. He then makes some proposals for avoiding bipartisanship in government. For example, when the presidential elections come both the parties makes various promises but none of them stick to their promises after coming to power due to bipartisanship. He suggests that in order to tackle this situation the promises made by candidates during presidential elections should be enforceable legally. Further, he wants us to recognise the trade-off that government faces by giving one example where the accused criminal out on bail commits a shocking murder while awaiting trial. In such situation it is difficult to figure out what steps should be carried out to stop such things as there is a trade-off between the public safety and the rights of accused. Finally, he concludes the chapter with an observation made by him which says that if the best policy proposal seems bizarre, it might be only because we are unused to seeing anything like the best policy proposal in action. Each of these proposals has some flaws which can only be known by once the policy is experimented.

HOW MARKETS WORK

In the Chapter, why popcorn costs more at the movies and why the obvious answer is wrong, the author here explains the mystery of why popcorn is so expensive at the movie theatre. The general notion among all is that the movie owner has a monopoly, so he sets prices according to his will. But the author argues that theatre owner has monopoly over many things in the theatre like the restrooms and lobby. But making them pay for that will

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make theatre less attractive. When we go to watch a movie and buy a quart of popcorn, we may be paying $7 for the ticket and $1 for the popcorn or $5 for the movie and $3 for the popcorn. End of the day owner collects $8. He also says keeping the movie prices feasible and charging more on popcorn will make popcorn lovers pay more and non-snackers see only the movie. Popcorn lovers will enjoy their evenings. Price discrimination of products are done everywhere, it is economic jargon for selling the same product at more than one price. Airlines, hotels, doctors and universities charge different prices. Price discrimination works only when the seller has a monopoly, to understand this statement consider if a theatre reduces its popcorn price from $3 to $2.50, which will make him earn profits but another theatre will also reduce its price and there will be price wars. Author finds price discrimination during his trip to New Mexico and in taxis. The author explains a scenario in an auction, where we are the highest bidder and this infers that nobody in the auction thought the item was worth your bidding price. This observation suggests that you have overestimated the true value. This phenomenon is called the winners curse by economists. In some circumstances winners curse is not an issue because auction goers maybe certain how much to pay for the item, without regard to how much others are willing to pay. The seller of the auction is also a strategic player in the auction game because he sets the rules. There are different types of auctions such as English auction, Dutch auction, Glum Losers auction and first-,second-,third-,fourth- and fifth- price sealed bid. The seller can choose any one among these to maximize the selling price. The author goes on to tell that sellers using vastly different rules do equally well on average, because the argument is technical. Different rules are used accordingly to the auction conditions. English auction are by far the most common and appear to be the form most favoured by auctioneers. If you are bidding for a painting we will be willing to me any price for it. The winners curse is initially the buyers problem but becomes the sellers problem also because buyers defend against it by letting their bids downward. Economists study interest rates because interest rates are a pervasive social phenomenon and economists aspire to understand everything about human society. The interest rate has to be whatever is necessary to convince the average family to consume its average share of the goods that are available for consumption. Basically there are two interest rates nominal interest rate and real interest rate. Nominal interest rate does not account for inflation, whereas real interest rate does. The interest rate is not the price of money. It is the

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price of current consumption. Keynes and Friedmans works prove that money can affect the interest rates in the short run and its effect is through subtle channels. In the case of any economic development or situation, interest rates change. If the supply of a good falls, its price rises until consumers demand no more than is available. We can assume good to be current consumption and price to be interest rate. As the interest rate rises, savers choose to save more and borrowers choose to borrow less. Interest rates continues rising, until the consumer has decided to spend less. In general, if the supply of goods falls, as when the government wastes resources, the interest rate must rise. If the supply of goods rises, the interest rate must fall. A random walk is not a theory of prices; it is a theory of price changes. When firms do something, it affects the stock price and it might go up or down depending on the situation. According to the efficient markets hypothesis, no investment strategy based on the use of publicly available information can successfully beat the market. The efficient markets hypothesis and the random walk hypothesis are closely related, but are quite distinct. The random walk hypothesis says only that you can't get rich by observing price histories; the efficient markets hypothesis says that you can't get rich by observing anything that is publicly available. Today's price is the best possible predictor of tomorrows. Tomorrow's price is today's price, plus a random adjustment. The current price predicts the future price and it does not depend past price. To earn large rewards, you must accept risk. The trick is to accept no more risk than is necessary. The method is to diversify, by recognizing assets that tend to move in opposition and by using this information judiciously. Random walk theory implies that you can never improve your prospects via a strategy that relies on examining past price behaviour. With or without random walks, financial markets continue to reward hard work, talent, and occasionally luck. Author in the chapter titled, The Iowa Car Crop has discussed two technologies for producing automobiles in America, one is to manufacture in Detroit and other is to grow them in Iowo. Now, allocation of production of fleet of cars can be allocated between Detroit and Iowo such that a competitive price system minimizes total production cost. Protecting Detroit against the foreign competition impoverishes nation as a whole. Trade theory by David predicts first that if you protect American producers in one industry from foreign competition, then you must damage American producers in other industries.

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THE PITFALLS OF SCIENCE

Author in this chapter, Was Einstein Credible? The Economics of Scientific Method, speaks about Einsteins application of relevancy of time with innovation and application of game theory. He compares the theory of knowing and unknowing with probability. He also speaks about the problems that scientist under go in the process of discovery. He also debates about novelty which has gone on for over four hundred years without any of the participants, feeling obliged to specify his model of scientific behaviour. He says Beware of great thinkers who advertise their conclusions without revealing their assumptions? He says he likes Economics because it insists on a higher standard. The Author in the chapter, New, improved Football: How Economists go wrong, showed how economists go wrong when they apply theories directly in their models. He cited an example of an economist who has done immense research on football, as a result he was called by commissioner of national football league to counter punting but he failed. The same economist failed to impose government policy of increase in consumption of cornflakes. Author also cited the example that earlier people thought inflation will result in employment, but with few instances they realized it not like that always. Here an author wants to say that an economist who relies on nothing but statistical extrapolations has no chance at all.

THE PITFALLS OF RELIGION

Author in this chapter has discussed the thinking of environmentalist and why as a economist he is not an environmentalist. He cited few examples such should there be a parking lot against the woodland. Some of the arguments are difficult to agree, such as recycling paper being bad for trees, but are quite obvious which make you think differently and more lucidly. He also cited an example in which environmentalist call for ban on carcinogenic pesticides which will results in less production of fruits and vegetables. Also he discussed rich countries want to transfer pollution to poor countries which are ready to accept some pollution generating industries in exchange of jobs. Author believes that in the absence of explicit contracts, people who lecture other people on their "responsibilities" are almost always up to no good.

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CONCLUSION
The book Armchair Economist: Economics and Everyday Experience great, easy-toread book about economic principles. Although reading this book requires some basic knowledge of economics in order to connect it with theory, but author has wonderfully explained how economics is used in day to day life with the help of brilliant examples and tried his best to make it easy to understand for people who doesnt have any knowledge of economics. The book has totally changed our perception about economics. Before reading this book we havent ever thought that economics can be applied at every point of your life. It is a good book about how most people fail to apply basic economic principles in their lives. He first writes what the general public thinks about the issues and then explains how economists think. What Landsburg argues is that a world run solely on an economic basis would produce some bad things, some good things, but that the good or the bad outcome is incidental. I liked this book better than Fair Play, mainly because Landsburg admits that he doesn't have all the answers to the questions he brings up. Moreover, where he has an answer, he tends to refer to it as the best explanation he's come up with so far. On the other hand we also felt that sometimes he keeps on giving examples so much that reader gets confused whether which example to remember and connect with the particular topic. Also, most of the times he keeps on talking about opinions rather than facts. Reader will find it more interesting if he gives factual examples. Also, as an Indian reader we are not able to understand some of his examples which are about events and places related to US. So, as an international author he should adopt universal approach. In short, this is a fascinating book. In spite of its absurdities it should be read by anyone who wants to know how economists think about the world and how we should look at world economically.

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