In his first chapter, "Who Pays for Your Coffee?" of his book The Undercover Economist, Tim Hartford discusses what goes into the price of a cup of coffee. Hartford begins by discussing how part of the success of Starbucks is based on the location of their stores. He then discusses relative scarcity, or the idea that whatever has higher demand has more power. Hartford then discusses 'marginal land," describing it as the land that determines the value of other things, it is neither the worst nor the best, rather what is most available. Hartford describes Ricardo's model for the economy of the three pieces of land that are under control of one landlord, all three of varying qualities. This model, Hartford says, can be applied to most economic situations, but does not take into underlying social practices or patterns always, so it is not all-telling. Next Hartford gives reasons for other reason why the rent for property would be high, in addition to scarcity, this can be due to it being the best so it provides the best, or there may be no alternatives. Then Hartford continues by discussing whether or not we are being ripped off by businesses, which he says yes, sometimes we are because of a company's relative monopoly on something. However, sometimes we are paying more for good service because that is our priority and sometimes we prefer what we know, so we are willing to pay more. He then discusses why rents are what they are, creating rents landlords try to avoid or control competition or try to take other's rewards. Next Hartford discusses the economy involving crime, namely that of gangs. He says that on the drug market competition is made scarce through illegal activity, which is reverted to because selling drugs is illegal anyway, so more crime will not do much and there will not be complaints to the police of being ripped off. Hartford goes on to talk about trade unions and how they are there to bargain collectively, as well as block too much entry into the profession. There are also professions that limit the number of qualified professionals and make the low-cost alternatives illegal. Hartford then explains how our country needs a balance of skilled workers as well as unskilled workers in order to create an effective system, and that immigrants are only a threat to the section of the economy that they are entering. Hartford concludes by discussing what economists should do to make our economy better.
Scarcity power is a term in Hartford's writing that describes that the power in a situation goes to whoever possesses a desired resource, especially when the resource is scarce. Store owners try to take advantage of this scarcity power by being the only shop that offers what they offer, which needs to be something people need, in a convenient area for their target customers. Store owners take advantage of scarcity power they posses by upping prices for their products because they know people need their product and if they are the only place that sells it conveniently, people will be willing to pay more for it to avoid inconvenience. Marginal lands are those lands which determine the value of the other lands, they are not always the worst land though. Marginal lands are the base line for land and changes based on what is available. For example if there is swamp land, uncultivated field, and a field of fertile soil, the best land is the land with fertile soil. But, if there is only swamp land or an uncultivated field, the uncultivated field becomes the best land available and under the highest demand. External factors that drive up prices include lack of competition, convenience, preference, and location. It is possible to apply scarcity power to the job market as well, as Hartford does. But having a college degree (BA or BS) does not give you this power on the job market because today more and more people are going to college, it is something that is almost expected of many people. Having these degrees just puts you into a smaller group of people that is still very large, so you are not a scarce resource usually. Havign higher degrees gives you this power, but even still, weighing the costs and benefits, this still is not beneficial all of the time in the job market, although you do have more scarcity power.
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