The Undercover Economist - Tim Harford - ***

Things are most expensive when they are scarce: through examination, you can find out whether the scarcity is natural or artificial

Three economic reasons to pay expensive prices:
- The ROI justifies the price
- The convenience justifies the price
- The alternative is unavailable

A trade union is partly designed to bargain collectively, but also partly designed to block too much entry into the profession.

The self-incrimination strategy: where a company will charge a premium for some of its products despite similar production costs
One way to get people to pay as much as they can afford is to make the cheaper alternatives as unappealing as possible

Safeway vs. Wholefoods:
Safeway charges high prices on branded orange juice and sparkling water, because those are luxury items to its customers. Wholefoods sells these items for less, because these are low-end items in Wholefoods: the high-end customers are likely to buy the fresh-squeezed juice at the in-store juice bar or other such products.

Price discounts are best saved for price-conscious or repeat customers.

People object to individual-based prices, but are less resistant to group-based prices.

Premiums charged by retailers go straight into their pockets - the raw materials are a tiny portion of the price of the good, and changing them is a miniscule increase in expense.

When retailers rotate beween sale prices and high prices, they're able to make sales to price-sensitive consumers who won't buy the item for the higher price.
Companies find it more profitable to increase prices (above the sale price) by a larger amount on an unpredictable basis than by a small amount on a predictable basis.
One trick retailers use is to separate items with premiums from lower-priced items so that the consumer doesn't notice the price difference
-- not stocking the lower-priced alternatives also works, as does giving all items a premium, when dealing with price-insensitive customers

Restaurants can't charge people for dawdling, but they can charge people extra for items that tend to be consumed during longer meals, such as appetizers, desserts, and wine.

Externality: any impact of an economic transaction on an uninvolved party
Externalities need to be proportionately charged to the parties causing them

Externality pricing is attractive because it attacks the problem without making any assumptions regarding the solution.
- some of the solutions are good, but others are dodges (building a home with few windows to escape per-window luxury taxes)

The Undercover Economist vs. the carbon-neutral movement:
When the UE got to the discussion, a staff member asked him how he traveled to the meeting, explaining that trees would be planted to offset the emissions. The UE didn't understand how this worked. If planting trees was the best way to deal with carbon issues, why have the meeting? If the awareness-raising debate was the important thing, why spend their limited resources planting trees?

Subsidies mar the true cost of things, allowing inefficient and otherwise impractical transactions to take place
The energy efficiency example: if a renovation is worth $500 to a homeowner and $300 to a utility company, it won't get done if it costs $1000. If a government grant of $500 is given to perform the renovation, the government will have spent $500 to make the parties $300 better off.
-- if a subsidy is insufficient, it encourages little change and raises the margin slightly
-- if a subsidy is an overcompensation, it encourages too much change and raises the margin in a big way
-- insufficient subsidies would be a good way to expand important but marginal trades
-- overcompsative subsidies would be good for investment purposes: if the important thing is that the investment gets made, it might be better to overpay and recoup the investment after a longer period than to never make the investment

Inside information changes the nature of a market.
the lemons problem: when inside information guts a market because ignorant buyers are unwilling to pay for quality they cannot observe

Tourist traps exploit the tourist's lack of inside information, charging him a premium for his ignorance.

Health insurance is expensive because people are able to self-select their participation: "fair" rates are noxious to the healthy, but leapt upon by the feeble

The only information a potential customer can glean from an ad with no informational content is that it was expensive to make, and therefore the entity responsible for it must be doing something right.
-- that's awesome

When you have inside information and someone else knows it, you can earn trust by communicating your value in ways that would be prohibitive to the valueless
When someone else has inside information and you know it, you can ask them to demonstrate their value - and you can enact safeguards against duplicity

moral hazard: the prospect that a party insulated from risk may behave differently from the way it would behave if it were fully exposed to the risk

Reported earning per share:
When buying a stock, check the company's earnings per share against the share price

The Grolsch method of stock trading: see what's popular, buy it early, cash out quickly

Long-term price-earnings ratios have always been around 16.
All stock prices incorporate tremendous expert knowledge.
Long-term profitability for a company comes from having a capability others cannot match.

When the telecommunications spectrum was auctioned off, the auction theorists made the mistake of allowing the telecommunications companies to make bids containing area codes. Since every company wanted a piece of the pie, but none of them wanted to pay more than they had to for it, the companies chose to bid in blank territories.

Collectivist auction: anyone who stays in the room is willing to buy the item for the named price, whereas anyone who leaves is not

Never ascribe to conspiracy that which is adequately explained by incompetence.

A project is most likely to be successful if the people who benefit from its success are the same people who make it possible.

Nepal's dam:
Nepal's irrigation system involved a dam and canals. The farmers near the dam would help clear the canals, and the farmers near the canals would help maintain the dam. When a new dam was built, a dam that required less maintenance, the farmers near the dam no longer needed help and the agreement broke down.

Cameroon, like other poor countries, is a topsy-turvy world in which it's in most people's interest to take action that directly or indirectly damages everyone else.

Comparative advantage is the foundation of the way economists think about trade.
-- nationalism makes comparative advantage an arms race

One of the most important theorems of trade theory, the Lerner theorem, proved in 1936 that with a zero trade balance, a tax on imports is exactly equivalent to a tax on exports.