Financial inequality is a major issue faced by economists, policy makers, and of course, plain people.
In many cases, the gap between the rich and the poor is so deep, and the difference in wealth is so intense, that the existing status quo is very similar to a “crime” situation. That is where the “Undercover Economist” enters the picture, in order to investigate this “crime”.
The role of the “Undercover Economist”
The role of the “Undercover Economist” is to investigate seemingly “innocent”, and unrelated economic phenomena, decisions, actions and behaviors, in order to find out the reasons why such extreme wealth differences exist, at both local and international level.
For example, an analysis of the underlying factors behind the high price of coffee beverages sold by vendors operating at strategically-placed stores, in terms of the volume of passing trade, is definitely the last thing that coffee drinkers would like to do, instead of simply enjoy their cup of coffee.
Without doubt, a nice cup of coffee is really what consumers need first thing in the morning, on their way to their jobs, and not an economic analysis of the market of serving and selling coffee beverages. That’s why they are willing to pay a premium price to have the privilege of enjoying a revitalizing cup of coffee, and this is what the “Undercover Economist” attempts to investigate through an analysis of the various economics parameters that play a role in a consumer’s decision to buy a cup of coffee, and he does so by using plain language rather complex economic terms and concepts.
Tim Harford, the author of the “Undercover Economist”, follows an approach based on an extensive exploration of the economic aspects that are hidden behind everyday situations common to millions of people, in order to make those aspects easy to understand for his readers. It can be assumed that these readers perhaps lack even a basic knowledge of the primary principles and concepts taught in academic courses in economics. They are ordinary people who may only be able to understand a straightforward and simple explanation of the rules that govern the market of serving and selling coffee beverages.
Harford interprets real-life consumer cases, situations, and patterns of behavior by adopting a fresh approach and expressing his alternative point of view.
For example, while thinking of the high price of a cup of coffee at highly-sought-after market locations as a “crime” and looking for potential “suspects”, commercial landlords would be the last persons to spring into mind as possible “crime suspects”.
Yet, Tim Harford provides a series of well-grounded arguments to support this approach, and follows this strategy throughout his book.
Although he performs some elementary cost analysis to reach the conclusion that coffee vendors make a very healthy profit, indeed, as a result of taking advantage of their “scarce” selling location, he stresses the fact that cost is not that important to thirsty coffee drinkers on their way to work. It’s the urgency that consumers feel, in order to satisfy their need for caffeine, what makes them price-blind.
Therefore, an additional conclusion that could be drawn from the example of coffee vendors is that, in fact, the spread of global trends in consumption all over the world results primarily from consumer choices and tastes, whereas the effectiveness of marketing strategies and cost-reducing techniques that are applied by companies plays a secondary role.
Nobody forces drinkers to buy the same cup of coffee at a double, or even triple, price, except perhaps their personal wants that have to be satisfied on the spot. The marketing efforts to sell cups of coffee to them are minimal, and are limited, as the writer, points out, to the lovely smile of an “exotic barista”. The coffee vendors who charge them premium prices have of course realized how badly commuters need that cup of coffee, and do not have the time (or simply don’t want to bother) to look for a cheaper alternative.
Further reading:
Priceless Advice From 'The Undercover Economist'
Originally published by me on vocal.media