2010-07-22

Book Review: "The Undercover Economist" by Tim Harford

(CC-BY-NC-SA Das U-Blog by Prashanth)
This is also a borrowed book (from the same relative that lent me the book Mokshagundam Visvesvaraya). That said, I will say right off the bat that this is a far superior book in terms of writing style and quality.
I took an AP Economics course this past year, so I was somewhat familiar with most of the concepts presented in this book beforehand. However, when I read the book, I realized what I had been missing.
My class's questions didn't have any apparent relation with what was going on in the world. Why should I care if XYZ Corporation's average variable cost is higher than the market price of the good it sells? One is truly an economic theorist if one weeps at the thought of a hypothetical company shutting down to minimize costs. On the other hand, this book relates economic concepts to things that matter, like why coffee is sold at different prices and why different land areas fetch different prices.
Harford first talks about the ideas of rents and profits, continuing with the various functions of prices as signals and the various means companies try to extract different prices from different customers (for the same product). He then talks about externality taxes and subsidies, continuing with market failures occurring due to the presence of inside information (i.e. information that one side but not the other doesn't). He then continues with a discussion on the stock market and on bidding wars. He concludes with discussions on why poor countries remain poor and on the effects of globalization on various countries, both rich and poor.
In short, I am convinced. By using relevant, practical examples in explanations of every concept introduced, he has convinced me that while the free market can solve most problems, government intervention is generally required when externalities show up (and these can't be solved by market negotiations); this is a very reasonable-sounding idea, without resorting to the ideologies of either "government is always bad" or "markets are always harmful".

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