The Undercover strongEconomiststrong - A.V. Vedpuriswar.pdfVIP

The Undercover Economist By Tim Harford, Little Brown, 2006 What makes markets work? What makes something valuable? What is the basis for bargaining power? Why do poor countries struggle to develop? What is the impact of trade on the environment? Using the basic principles of economics, the author analyses various problems of day-to-day life. Daily life is full of puzzles. But many of us do not even realize them. This book helps us to understand these puzzles and what lies behind them. The importance of scarcity When a deal is being done between somebody who has something unique and someone who has something which can be replaced, the profits are likely to be cornered by the person with the unique resource. When relative scarcity shifts, the bargaining power of the people involved in the deal, also shifts. Some things are scarce because of natural factors. Others are scarce because of man made factors – legislation, regulation or foul play. For any company, grabbing or developing unique resources is really the only way of generating profits on a sustainable basis in the long run. These resources could be physical or intangible assets or some unique competencies. In the real world, people and organizations try to create scarcity by erecting barriers to entry in many ways. The purpose of a trade union is to prevent workers from competing with each other for jobs, thereby driving down wages and worsening working conditions. Professional bodies like doctors, actuaries, accountants and lawyers try to maintain high wages through long qualification periods . Some professional bodies give their approval to only a certain number of candidates per year. The CFA (USA) and CA (India) certification are good examples. Price Discrimination We learn i