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TUE Chapter 1

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34 views

TUE Chapter 1

Uploaded by

willl Busken
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
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William Busken

Professor Robinson
ECO101
September 3, 2024
The Undercover Economist Chapter 1 Summary

The first chapter of The Undercover Economist discusses how location, demand, laws,

and competition changes what happens in the economy. Harford begins by talking about how

although coffee can be made very cheaply, stores like Starbucks are able to upcharge and still

have people buy it. This is because of the location of the business. In a large city like New York,

having a Starbucks located right next to the entrance of the subway is a very ideal position. This

is because tired, early rising businessmen and women are willing to paid five dollars for a coffee,

even though there are cheaper options. However, Starbucks is not the entity that profits the most,

the landlord of that building location is bringing in the most money. This is because all other

coffee shops know that Starbucks’ current location is going to be the most profitable for them.

Therefore, the landlord is able to charge a very large amount of money to rent out that location.

The chapter continues by talking about David Ricardo’s theory of economics. David Ricardo was

an economist in the 1800’s who came up with the meadow and farmer theory. This theory is used

to explain current economics, like why the landlord is able to charge Starbucks so much money.

The chapter also talks about marginal land, which is a very important concept in economics. The

reason for this is that marginal land is what determines the cost of premium land. So, if

everywhere in the world had busy, tired, early rising businessmen and women, then that location

near the subway station in New York, would not be nearly as expensive to rent out. Although

location plays a big part in how rent is determined, other factors can be used as well. “Green

Belts” are an example of how landlords can charge much more for rent. Green Belts are areas of
land surrounding a city or area that are protected by the government for environmental reasons.

Although I wish people made these regulations to simply protect the environment, they don’t. If

people can constantly keep expanding and building new and cheap places to live, the landlords

will have no bargaining power over what rent is. Similarly, public transportation often doesn’t

improve because faster and cheaper public transportation would also decrease landlord’s

bargaining power. The novel went further and discussed how to tell if you are getting ripped off

or not. This all stems from a company’s competition and market. Some companies have fairly

easy markets, meaning it wouldn’t be hard for anybody to start their own business and make

some profit. For example, restaurants or small stores wouldn’t have a difficult market because it

is feasible for anyone who makes a decent salary to gather the resources to start that business.

However, companies with difficult markets like oil, dominate the market and have all the power

when it comes to prices. An average person couldn’t gather the resources to start an oil drilling

company, therefore oil companies have very little competition. This means they don’t have to

worry as much about customers switching to another businesses product. So, if you are

wondering if you are getting ripped off, just think to yourself would it be feasible that you could

sell that product that you are buying yourself? If you answered yes, then you probably aren’t

getting ripped off. The chapter begins to close off by discussing immigration and how it affects

skilled and unskilled workers. Skilled workers desire more immigration of unskilled workers

because their jobs are safe, and they can continuously pay them less. Whereas unskilled workers

feel threatened by immigration because they know that their jobs will be done by immigrants for

less. At the end of the chapter, the novel says that economists are able to see the world in a way

that exposes the exploitative practices of big corporations and the government.

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