Using Ricardo's theory of rent seeking as a jumping off point, Tim Harford's "The Undercover Economist" is an upbeat introduction to microeconomics couched in language that is accessible to the layman without being trite or boring for those that already have a solid grasp of the subject.
The first half of the books deals with a somewhat more modern version of standard theories of supply and demand, rent seeking, perfect and imperfect information, externalities and incentives. Modern examples such as the location of Starbucks and the cost of a double latte grande clarify the points completely.
In the second half of the book, Harford moves into the realm of macroeconomics dealing with issues such as taxation, government subsidies, incentives and disincentives related to externalities, the seemingly endless cycle of poverty in third world countries, the theory of comparative advantages, third world dictatorship and communist government policies as contrasted with democratic capitalist economies, education and so on.
Not quite a treatise on macroeconomics, Harford makes the subject infinitely more interesting by exploring the margins of the topic and explaining how such macroeconomic considerations drift into the world of microeconomics and affect such basics as pricing, supply, demand, production and incentives.
Perhaps the most interesting chapter in the entire book was Harford's brief explanation of the mathematics of game theory and how economic game theorists constructed a series of government auctions to attempt to sell frequencies for cellphone licences to the highest bidding communications companies. The devil was obviously in the details as one auction succeeded beyond the wildest expectations of the government policy wonks whereas another garnered less than 1% of the anticipated revenue for the sale. Another chapter that will raise more than a few eyebrows explained in some depth why the world should welcome the globalization of trade and the elimination of trade barriers entirely.
Informative and entertaining, somewhat more academic in approach than the likes of "Freakonomics", "The Undercover Economist" is good reading for anyone who would like to have a deeper understanding of what makes the world's economies tick.
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