1. By Tim Harford Presented to you by Hamma Toure and Boris Miaka The Undercover Economist

2. The Importance of Markets At the market we discover the true prices

3. Markets have advantages for some people and disadvantages for others. The non-market services like the police and fire service, on the other hand, provide the same service to poor and rich alike without discrimination. The services provided on the market, however, do discriminate between the rich and poor. That’s why students do not attend the same college or university.

4. Life without Markets Has Advantages

5. Life with Markets And Disadvantages

6. Life on the Margin What is the margin?

7. Marginal land is “at the margin” between land that people live on and land people do not live on. The same is true of other things. The margin is the difference between what people are willing to pay for and what they are not willing to pay for.

8. Decisions on the margin are very important in economics

9. Life on the Margin Living like this is better than the alternative in the countryside.

10. Prices Marginal The cost to pay for one more item. Average The total divided by the number of items. vs.

11. All-you-can-eat buffet The average price at an all-you- can-eat buffet in Silver Spring is $7.50 This hides the true cost of each meal. Therefore, customers tend to overeat because the marginal price is ignored (it doesn’t cost any more to have another plate).

12. Eat up!

13. There are ways to get people to pay more for the same products. The products don’t cost the company any more than the other products. More on Prices

14. Starbucks Price List Hot chocolate Cappuccino Caffe mocha White chocolate mocha 20 oz cappuccino $2.20 $2.55 $2.75 $3.20 $3.40

15. Starbucks Price List TRANSLATED No frills Cappuccino-no frills Mixed them together – I feel special Use different powder – I feel VERY special Make it huge – I feel greedy $2.20 $2.55 $2.75 $3.20 $3.40

16. Scarcity is Power Bargaining power comes from scarcity. If you are the only one who has something that people want, you can charge more. Conversely, if there is an abundance of what you have, you cannot charge a lot.

17. Electricity and Water in Africa Monopolies don’t innovate

18. Scarcity and the Internet Land and internet space are two different things. Land is limited, but the internet is unlimited. Therefore, scarcity has no power on the internet. Google, Yahoo and many others innovate constantly.

19. Are Sweatshops Good?? While conditions, hours and wages are terrible, they’re better than the alternatives of working for the local company or starving in the countryside.

20. Where would you like to work?

21. South Korea prospered thanks to sweatshops Here’s how

22. 1. Multinational firms opened 2. They compete with each other for the best workers and skills 3. Wages rise to attract good workers 4. Local companies learned production techniques and become major employers 5. Factory work became more attractive

23. 6. People moved from the countryside, raising the rural earnings, thanks to scarcity. 7. Formal employment rises so tax revenues rise too. 8. Infrastructure, health clinics and schools improve with the new revenue 9. Dependence on foreign firms disappears.

24. To put it all together We have one more story

25. How Did China Grow Rich? 4 ways

26. #1 Gradual shift to the market system Mao commanded a “Great Leap Forward” that caused great misery for most and 60 million to die. Deng, his successor, caused a real leap forward by using the power of the market.

27. #2 Investing in the Future Deng raised the interest rate to encourage people to save money. Roads, bridges and buildings were built with government investment

28. #3 Competition Foreign companies were welcomed. The Chinese learned from them.

29. #4 Engaged with the rest of the world China trades with countries all over the world

30. The Story of China illustrates the importance of these economic concepts Markets Margins Prices Scarcity Sweatshops

31. To learn more Read the book

32. The End We hope you learned a lot. To learn more, read the book! The Undercover Economist By Tim Harford Presented to you today by Hamma Toure And Boris Miaka