SuMlMu CuM 20102012 1he undercover LconomlsL

1

A 8ook 8evlew Cn


1nL UNDLkCCVLk LCCNCMIS1

Exposing Why The Rich Are Rich,

The Poor Are Poor
And Why You Can Never Buy
A Decent Used Car!


SubmlLLed 8y


Abhlshek 10061
Abhlshek u 10062
Alok okharna 10063
AmlL kumar !ha 10064
AnlkeL uas 10063
Anll Anand 10066













SuMlMu CuM 20102012 1he undercover LconomlsL
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Table of Contents
1lnLroducLlon 3
2 AbouL Lhe AuLhor 3
3 ubllsher 4
4 Who ays lor ?our Coffee 3
3 WhaL SupermarkeLs uonL WanL ?ou Lo know 3
6 erfecL MarkeLs and Lhe World of 1ruLh 6
7 Cross 1own 1rafflc 7
8 1he lnslde SLory8
9 8aLlonal lnsanlLy and 1he Men Who knew Lhe value of noLhlng8
10Why oor CounLrles Are oor 9
118eer Chlps and CloballsaLlon9
12 Pow Chlna Crew 8lch 10
13 Concluslon 11













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lnLroducLlon

1he promlse of 1he undercover LconomlsL ls LhaL lL wlll show you Lhe world Lhrough Lhe eyes of Lhe
economlsL 1he book opens noL by conslderlng maLLers relaLed Lo blg economlcs buL by wonderlng
abouL Lhe prlce of a cup of coffee aL WaLerloo SLaLlon ln London Why does a cup of coffee cosL
whaL lL cosLs Lhere? WhaL facLors govern Lhe prlce? WhaL lnfluence does Lhe facL LhaL lLs a busy
sLaLlon have on Lhe prlce? 1hese everyday conslderaLlons lead dlrecLly Lo Lhlnklng abouL Lhe baslc
economlc prlnclples aL play all around us And wlLh concreLe slLuaLlons Lo hand Lhe dlscusslon uses
everyday language Lo explaln and lllumlnaLe Lhe someLlmes surprlslng ways LhaL economlc
lnLeracLlons manlfesL Lhemselves
More welghLy maLLers are noL lgnored Pavlng grounded Lhe reader ln Lhe rudlmenLs of economlc
Lhlnklng early on Parford Lackles some of Lhe blgger lssues CloballsaLlon developmenL economlcs
poverLy Lhe rlse of Chlna as an economlc superpower ls all Lackled And lLs noL [usL lnLernaLlonal
lssues he also looks aL domesLlc 8rlLlsh lssues such as Lhe naLlonal PealLh Servlce

AbouL Lhe AuLhor

1lm Parford ls a member of Lhe llnanclal 1lmes edlLorlal board Pls column 1he undercover
LconomlsL" whlch reveals Lhe economlc ldeas behlnd everyday experlences ls publlshed ln Lhe
llnanclal 1lmes and syndlcaLed around Lhe world Pe ls also Lhe only economlsL ln Lhe world Lo run a
problem page uear LconomlsL" ln whlch l1 readers' personal problems are answered Longueln
cheek wlLh Lhe laLesL economlc Lheory
1lm's flrsL book 1he undercover LconomlsL" has sold one mllllon coples worldwlde ln almosL 30
languages Pls second book 1he Loglc of Llfe was publlshed early ln 2008 ln Lngllsh and has also
been wldely LranslaLed and hls Lhlrd book uear undercover LconomlsL" ls a collecLlon of hls uear
LconomlsL" columns
Pe presenLed Lhe 88C Lelevlslon serles 1rusL Me l'm an LconomlsL" and now presenLs Lhe 88C
radlo serles More or Less" Pe ls a frequenL conLrlbuLor Lo oLher radlo and 1v programs lncludlng
Lhe ColberL 8eporL MarkeLplace Mornlng LdlLlon 1oday and newsnlghL Pe has been publlshed by
Lhe leadlng magazlnes and newspapers on boLh sldes of Lhe ALlanLlc lncludlng Lsqulre lorbes
SuMlMu CuM 20102012 1he undercover LconomlsL
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Wlred new ?ork Magazlne Lhe Cuardlan Lhe London 1lmes Lhe WashlngLon osL and Lhe new ?ork
1lmes




ubllshers
Cxford unlverslLy ress lnc
198 Madlson Avenue new ?ork new ?ork 10016
wwwoupcom
I|rst Ld|t|on 2006


























SuMlMu CuM 20102012 1he undercover LconomlsL
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ChapLer 1

Who ays for ?our Coffee?

ln Lhls chapLer we learn LhaL lL cosLs forLy cenLs Lo make a one dollar cup of drlp coffee and cosLs less
Lhan a dollar for a small laLLe whlch sells for $233 So somebody ls maklng a loL of money Who?
1he chapLer beglns wlLh an lnLeresLlng dlscusslon of coffee shop locaLlon and urban renL LhaL applles
uavld 8lcardo's wellesLabllshed Lheory of renL ln lnLeresLlng ways LhaL readers are llkely Lo flnd
lnformaLlve Parford's dlscusslon of Lhe Creen 8elL's relaLlon Lo London renLs ls remlnlscenL of
8ernard Slegan's analysls of Lhe effecLs of envlronmenLal proLecLlons on land renLs ln Callfornla
durlng Lhe 1970s ArLlflclally lmposed scarclLy changes renL aL Lhe margln by alLerlng exlsLlng scarclLy
parameLers lrom Lhls lnslghL lL ls easy for an economlsL Lo search for such resLrlcLlons everywhere
and when found Lo lsolaLe Lhe wlnners and losers 8eLLer publlc undersLandlng of Lhe dlsLrlbuLlonal
effecLs creaLed by lmposlng arLlflclal scarclLy ln whaLever form mlghL well dampen voLer
enLhuslasm for such pollcles ln Lhe fuLure 8y explalnlng Lhe generally overlooked wealLh
redlsLrlbuLlon effecLs of such pollcles Lo hls readers Lhe auLhor performs a valuable servlce


ChapLer 2

WhaL SupermarkeLs uonL WanL ?ou Lo know

1hls chapLer dlscusses markeLlng ln modern supermarkeLs and beglns wlLh a dlscusslon of how
buslnesses Lry Lo segmenL Lhelr cusLomers Lo lncrease overall revenues Lhrough prlce dlscrlmlnaLlon
SupermarkeLs are prlme examples slnce Lhey sell a varleLy of labels and quallLy and are always
seeklng ways Lo geL prlcelnsenslLlve cusLomers Lo pay more Lhrough selfldenLlflcaLlon Cne way ls
Lo offer socalled organlc brands LhaL LouL Lhelr envlronmenLally frlendly producLlon process lree
range" meaLs are also popular as selfldenLlflers belng Lhe supermarkeL equlvalenL of falr Lrade
coffee" aL SLarbucks Parford flnds Lhese LacLlcs examples of prlce gouglng and afLer dlgesLlng hls
analysls readers mlghL well be lncllned Lo agree wlLh hlm Parford sees prlce dlscrlmlnaLlon as boLh
good and bad dependlng on Lhe conLexL and clLes several lnLeresLlng examples LhaL lead hlm Lo Lhls
concluslon

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ChapLer 3

erfecL MarkeLs and Lhe World of 1ruLh

1hls chapLer lnLroduces readers Lo perfecLly compeLlLlve markeLs or as Parford calls Lhem Lhe
world of LruLh" slnce money prlces ln perfecLly compeLlLlve markeLs Lell Lhe preclse LruLh abouL Lhe
opporLunlLy cosLs of all cholces All Lhls ls Lrue as far as lL goes buL Lhe chapLer venLures lnLo some
unseLLllng avenues when Parford beglns dlscusslng falrness lssues"lmpllclL ln hls analysls ls Lhe
assumpLlon LhaL egallLarlanlsm applled Lo wealLh ls correcL and LhaL somehow economlsLs or
oLhers wlLh a soclal englneerlng benL can use pollcylump sum Laxes for exampleLo ad[usL Lhe
game" of perfecL compeLlLlon so LhaL lL sLlll generaLes efflclenL ouLcomes whlle malnLalnlng equallLy
of lnlLlal sLarLlng poslLlons Parford advocaLes ln Lheory a Lax on people llke 1lger Woodssay a
few mllllon"and declares lL falr and efflclenL because he has unfalr LalenL Lo make money relaLlve
Lo all Lhe less glfLed among us and Lhe Lax cannoL be avolded so wlll noL deprlve 1lger of hls manner
of earnlng money (1hls Lax lf enacLed would have Lo be a greaL deal more Lhan a few mllllon aL Lhls
polnL because Woods ls on Lrack Lo become Lhe world's flrsL bllllonalre Lour professlonal and qulLe
soon) 8uL such a scheme ls lmpracLlcal so Parford Lweaks Lhlngs a blL by advocaLlng subsldles (cash)
raLher Lhan Lweaklng Lax raLes or offerlng lnklnd welfare Pe uses Lhe example of elderly pensloners
ln 8rlLaln where he asserLs 23000 senlors dle each year from exposure Lo cold lf Lhls ls Lrue lL ls an
appalllng sLaLlsLlc WhaL Lo do? !usL glve Lhem money All Lhe real world compllcaLlons of
bureaucracy enLlLlemenL leglslaLlon and means LesLlng are nowhere Lo be found ln hls analysls Pe
flnlshes Lhls chapLer by appeallng Lo perfecL compeLlLlon as a moral norm whlle decrylng devlaLlons
from lL as markeL fallure"













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ChapLer 4

Cross Lown 1rafflc

1he chapLer lnLroduces exLernallLles and an lnLeresLlng comparlson on Lhe model for congesLlon
charglng and how Lo encourage unlverslLy sLudenLs Lo drlnk more or less as Lhe case may be

1he readers are LreaLed wlLh an endless llLany of Lhe horrors of modern LransporLaLlon sysLems and
Lhelr purporLed devasLaLlng effecLs on human welfareeach drlver who geLs lnLo hls car ls creaLlng
mlsery for oLher people" WhaL follows ls a long argumenL ln favour of marglnal cosL prlclng for auLo
use Parford assumes LhaL Lhe move Lo Lhe Lechnology for dolng Lhls Lhe vasL bureaucraLlc
apparaLus necessary for calculaLlon and bllllng Lhe lnvaslons of prlvacy LhaL would be an lnevlLable
splll over for uslng Lhls Lechnology All LhaL ls more Lhan [usLlfled by an appeal Lo fully lnLernallzed
cosLs of auLo use
1he large beneflLs of auLo LransporLaLlon are never dlscussed only Lhe alleged horrlble soclal cosLs
lL's almosL as lf Al Core wroLe Lhls analysls rlghL down Lo Lhe clalm LhaL lL ls unfalr" LhaL Lhe rlch can
buy more food Lhan Lhe poor lL ls perhaps besL lefL Lo readers Lo declde for Lhemselves how
convlnclng Lhey flnd Lhls chapLer




















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ChapLer 3

1he lnslde SLory

1hls chapLer ls on markeLs and medlcal care Space does noL permlL a deLalled dlscusslon of all Lhe
quesLlonable clalms made ln Lhls chapLer abouL Lhe vlrLues of slngle payer Laxpayerfunded healLh
sysLems versus Lhe alLernaLlves Parford wrlLes abouL Amerlca's healLhcare sysLem as lf lL were
somehow a pure markeL fallure slLuaLlon wlLhouL once acknowledglng LhaL Lhe admlLLedly overly
complex paLchy" coverage sysLem ls prlmarlly a creaLlon of vasL governmenLal regulaLory
lnLruslons boLh Loday and ln Lhe pasL aL every level of governmenL !usL because people do noL have
healLh lnsurance does noL mean Lhey do noL recelve medlcal care
Parford's proposed soluLlon Lo Lhese problemswheLher Lhe resulL of prlor publlc pollcy or noLls
flne medlcal savlngs accounLs coupled wlLh caLasLrophlc healLh lnsurance coverage enabllng
consumers Lo declde how much Lhey wanL Lo spend on rouLlne medlclne and pay for lL ouL of Lhelr
MSAs reLalnlng a properLy rlghL ln all monles noL spenL and applylng Lhe surplus Lo Lhlngs such as
reLlremenL


ChapLer 6 and 7

8aLlonal lnsanlLy and 1he Men Who knew Lhe
value of noLhlng

lL lncludes descrlpLlve dlscusslons of Lhe sLock markeL and sLock valuaLlons and varlous aspecLs of
game Lheory especlally Lhe deslgn and lmplemenLaLlon of aucLlons 8oLh are lnLeresLlng even lf a blL
dlfflculL for readers wlLhouL a background ln economlcs








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ChapLer 8

Why oor CounLrles Are oor

lL ls a LrenchanL dlscusslon of why poor naLlons are poor uslng Cameroon as an example lL ls here
LhaL Lhe book geLs back on Lrack Parford re[ecLs all Lhe fashlonable explanaLlons for poverLy ln Lhe
Lhlrd world and shows LhaL corrupL governmenLs are Lhe general cause of all such ongolng economlc
baskeL cases lL ls a devasLaLlng crlLlque of experL ald agencles" plannlng lnfrasLrucLure changes and
oLher useless Lhlngs ln chronlcally poor naLlons As Parford sLaLes 1hls nepalese example ls yeL
anoLher demonsLraLlon LhaL lf a socleLy cannoL provlde Lhe rlghL klnd of lncenLlves Lo behave
producLlvely no amounL of Lechnlcal lnfrasLrucLure can save lL from poverLy" (p 196)


ChapLer 9

8eer Chlps and CloballsaLlon

1he chapLer ls a nlce complemenL as Parford makes a sLrong case ln favour of globallzaLlon
especlally as lL helps poorer naLlons 1he auLhor Lrashes Lhe slmpllsLlc pollLlcally correcL pollcles LhaL
many advocaLe and oLhers supporL wlLh Lhelr purchaslng paLLerns as noL only lneffecLlve ways Lo
help buL also as poslLlvely bad Lhlngs for Lhe very people affecLed Such rheLorlc and purchaslng
declslons mlghL make people feel beLLer abouL Lhemselves as wlLh Lhe book's openlng dlscusslon of
falr Lrade" coffee buL Lhey do noL help Lhe poor
CloballzaLlon does










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ChapLer 10

Pow Chlna Crew 8lch

As lf Lo furLher prove hls argumenLs ln favour of globallzaLlon Parford ends hls book wlLh a chapLer
on Lhe rlse of modern Chlna showlng whaL wenL wrong for so long why lL dld and why Lhlngs have
sLarLed Lo rlghL Lhemselves ln Lhls chapLer he clalms LhaL Chlna ls llfLlng one mllllon people a monLh
ouL of poverLy even as Cameroon and oLher naLlons llke lL sllp furLher behlnd as Lhelr poverLy
populaLlons expand Chlna has moved from communlsL Lo sLaLecaplLallsL and wlll of course evolve
furLher buL Lhe flnal resulL remalns uncerLaln lLs recenL evoluLlon has however enrlched noL only
lLs own people buL also Lhe overall world economy as well Cne hopes LhaL Chlna's LranslLlon from
LoLallLarlanlsm Lo economlc freedom wlll someday be [olned by a slmllar LranslLlon Lo pollLlcal
freedom










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Concluslon

1he undercover LconomlsL ls consLrucLed lnLeresLlngly ln Lerms of ploL" developmenL sLarLlng off
from a few slmple examples of Lhlngs llke coffee prlces lL goes on Lo explaln some key concepLs llke
scarclLy power and whaL Parford calls Lhe world of LruLh" LhaL a hypoLheLlcal perfecL open markeL
would lmplemenL
1he book can be recommended Lo any reader lnLeresLed ln generally lnLeresLlng dlscusslons of many
currenL economlc problems