The Undercover Economist - Part IV - Crosstown Traffic

Market Failures





- Scarcity Power


- Missing Information


- Externality



Different kinds of prices: marginal and average



- Average price vs Marginal price (pay for extra trip)



"Externality Charge" e.g. traffic congestion (drivers incur no costs for making an extra trip), pricing should reflect the damage

- externality charge is not to discourage everyone from doing anything that might inconvenience anyone else; it is to get them to take into account the inconvenience they cause to others.



Example: Pollution from Driving

Externality cost (costs inflicted on others but not the driver)



Two Objections to Externality Charges

1. Unfair tax aimed at a disadvantaged group

- The rich will be able to do whatever it was that was objectionable (it is targeted at stopping voluntary activities)
- Raising more money from the rich (redistribute income)

2. Some simply feel the pollution should be illegal

Determining Externality Charges

it should adress all the externality costs, and externality costs along. Since it is very awkward to determine externality charges, the best way is to look at their "revealed preference"

- it does rely on the shaky information about how much it is really worth to us to reduce externalities such as noise, pollution and congestion; adding to that is we don't know how much it costs to reduce it. So we rely on scientific information

Battling Pollution
Example: EPA's auction for sulphur dioxide emission rights (few made high bid and exaggerates costs of reducting pollution); let EPA find out how much reducing pollution really costs

The Undercover Economist - Part III- Perfect Markets and the "World of Truth"

- A world of truth leads to a perfectly efficient economy, one in which it is impossible to make someone better off without making someone else worse off

- price tells the truth: no one would buy things that are worth less than the asking price and sell things that are worth more to them than the selling price

- in a perfectly competitive market the price of coffee would equal to the marginal cost of coffee (if price were lower, firms would go out of business; if price were higher, new firms would enter)


Perfectly Competitive Market
- Companies are making things the right way (otherwise will go out of business)
- Companies are making the right things
- Things are being made in the right proportions
- Things are going to the right people (those willingto pay the right price)

Non-Market Systems
- Police Force / Schools (conceals the truth about values)

Why are Taxes Inefficient?
- They destroy the information carried by prices in perfectly competitive, effiient markets: price no longer equals costs, so cost no longer equals value
(Taxes are higher when price-sensitivity is low)

- Head start theorem (all efficient outcomes can be achieved using a competitive market, by adjusting the starting position) e.g. lump-sum payments & levying onetime taxes that puts everyone on an equal footing

The Undercover Economist - Part II - What Supermarkets Don't Want You to Know

Businesses with scarcity power cannot force us to pay unlimited prices for their products, but they can chose from a variety of strategies to make us pay more.

Example (London Eye Coffee Shack Price discrimination):

- Dilemma (Higher margin per cup, but fewer cups; or lower margins on more cups)
- Price discrimination- Charge high price to the lavish (on free trade coffee) and a low price to the thrifty (normal coffee), they can maximize profits (yet have similar costs)
- By charging different prices for products that have largely the same costs, coffee shack is able to smoke out customers who are less sensitive about the price.


Three strategies for finding customers who are cavalier about prices

1. First Degree Price Discrimination "Unique Target Strategy"
- to evaluate each customer as an individual and charge according to how much he or she is willing to pay
- e.g. used car salesman or real estate agent (for products with high value relative to the seller's time)
- e.g. supermarket discount cards

2. Third Degree Price Discrimination "Group target strategy
- to offer different prices to members of distint groups
- e.g. reduced far for children and elderly

3. Self Incrimination Strategy
- to get customers give themselves away by selling products that are at least slightly different


Price-gouging the natural way
- Organic food
- Supermarket have come to the rescue with a plentiful supply of organic products that happen to be marked up far above their additional costs to the supermarket

Bargain shopping and bargain stores
- Similar products are, very often, price similarly. An expensive shopping trip is the result of carelessly choosing products with a high mark-up, rather than wandering into a store with "bad value", because price-targeting accounts for much more of the difference between prices than any difference in value between one shop and another.

Sale Pricing
- If some customers shop around for a good deal and some customers do not, it's best for stores to have either high prices to prise cash from the loyal

Reality Check #1 (Scarcity Power)
- Often, scarcity is something we we give companies through our own laziness (e.g., popcorn)
- Wine @ restaurant, charge higher price for things tend to be savoured during longer meals (i.e. dessert & appetizers as well)
- It is the lack of price sensitivity that allows a business with scarcity power to practise price-targeting

Reality Check #2 (Leaks in price targeting strategy)
- Price insensitive customers may buy cheap products unless the products are deliberately sabotaged
-e.g., own value brands at supermarket may of similar quality with disgusting design to put off customers
- Grooup targeting (customers who are being offered a discount may buy the product and then resell it at a profits to the customers who are being charged a higher price)
- e.g., DVDs

The Undercover Economist - Part I - Who Pays for Your Coffee

Strength From Scarcity

- AMT (The coffee shack @ Waterloo station) has the power to charge high prices because of the scarce location of the coffee kiosk

- Network Rail has the power to charge high rents because there is only one location and many companiess are eager to sell coffee there



David Ricardo and "Marginal Land"

- Prime coffee-bar locations will command high rents only if customers will pay high prices for coffee

- There is no absolute value for rent, everything is relative to the "marginal land"

- The coffee-kiosk is not an optimal location for selling 2nd hand cars or noodles (have no shortage in better alternative); yet, cheaper rent at other locations for selling coffee will not be sufficient to compensate for sales volumes generated from floods of price-insensitive customers





Different Reasons for High Rent

1. It's worth paying a lot for good land, because the grain that good land produces is so valuable.

2. Because the alternative that should be available are not (e.g., London's Green Belt restriction)

- "sustainable competitive advantage" (have edge over the competition that will produce profits year in and year out)

- "rent seeking" (avoid competition from others)

- Effectiveness of an organization - creates barriers to entry and sustainable profits

Conspiracies against the laity

- Unions, professional organizations etc.

- Immigration of cheap labour (well-educated workers welcome immigration, poorly educated workers resist immigration)

Secrets of the Millionaire Mind - PART II - The Wealth Files #17

Rich people constantly learn and grow, poor people think they already know.

- The goal of creating wealth is not primarily to have a lot of money, the goal of creating wealth is to help you grow yourself into the best person you can possibly be.

- Rich people are expert in their field, middle-class people are mediocre in their field, and poor people are poor in their field.

- Rich people not only continue to learn, they make sure they lean from those who have already been where they themselves want to go.

Secrets of the Millionaire Mind - PART II - The Wealth Files #16

Rich people act in spite of fear. Poor people let fear stop them.

- Rich people are willingto act in spite of fear, poor people let fear stop them

- If you are willing to do only what's easy, life will be hard. But if you are willing to do what's hard, life will be easy.

- By expanding your comfort zone, you will expand the size of your income and wealth zone.

- Training and managing your own mind is the most important skill you could ever own, in terms of both happiness and success

Secrets of the Millionaire Mind - PART II - The Wealth Files #15

Rich people have their money work hard for them. Poor people work hard for their money.

- The more your money works, the less you will have to work.

- To win the money game, the goal is to earn enouogh passive income to pay for your desired lifestyle.

- Poor people work to earn money to live today; rich people work to earn money to pay for their investments, which will pay for their future.

- Rich people buy assets, things that will likely go up in value. Poor people buy expenses, things that will definitely go down in value.

- Poor people work hard and spend all their money, which results in their having to work hard forever. Rich people work hard, save, and then invest their money so they never have to work hard again.

Secrets of the Millionaire Mind - PART II - The Wealth Files #14

Rich people manage their money well. Poor people mismanage their money well.

- Managing money does not restrict your freedom, it promotes it.

- The habit of managing your money is more important than the amount.

Money Management Method:
> Financial Freedom Account (deposit 10% of every dollar you earn into the fund, to be used only for investments and buying or creating passive-income streams, when retire, start spending the income generated from the fund, but not the principle itself)

> Financial Freedom Jar (Like attracts like, money attracts more money)

Secrets of the Millionaire Mind - PART II - The Wealth Files #13

Rich people focus on their net worth. Poor people focus on their working income.

- The true measure of wealth is net worth, not working income.

- To determine your net worth, add up the value of everything you won, subtract everything you owe.

(Income, Savings, Investments, Simplification)

- By tracking your net worth, you are focusing on it, and because what you focus on expands, your net worth will expand.

Secrets of the Millionaire Mind - PART II - The Wealth Files #12

Rich people think "both". Poor people think "either/or"

- Rich people live in a world of abundance, poor people live in a world of limitations.

- Rich people understand that with a little creativity you can almost always figure out a way to have the best of both worlds.

- Poor people and many middle-class people believe that they have to choose between money and the other aspects of life.

Secrets of the Millionaire Mind - PART II - The Wealth Files #11

Rich people choose to get paid based on results. Poor people choose to get paid based on time.

- "Never have a ceiling on your income"

Secrets of the Millionaire Mind - PART II - The Wealth Files #10

Rich people are excellent receivers. Poor people are poor receivers.

- Rich people work hard and believe it's perfectly appropriate to be well rewarded for their efforts and the value they provide for others. Poor people work hard, but due to their feelings of unworthiness, they believe that it is inappropriate for them to be well rewarded for their efforts and the value they provide.

- How do you become a good receiver?
1. Begin to nurture yourself (practive receiving the best life has to offer)
2. Go crazy with excitement anytime u find or receive any money

Secrets of the Millionaire Mind - PART II - The Wealth Files #9

Rich people are bigger than their problems. Poor people are smaller than their problems.

- The secret to success: Grow yourself so that you are bigger than any problem.

- The size of the problem is never the issue - what matters is the size of you!

- Rich and successful people are solution-oriented, poor and unsuccessful people are problem-oriented.

Secrets of the Millionaire Mind - PART II - The Wealth Files #8

Rich people are willing to promote themselves and their value. Poor people think negatively about selling and promotion.

- Resenting promotion is one of the greatest obstacles to success.

- Rich people are usually excellent promotors.

Secrets of the Millionaire Mind - PART II - The Wealth Files #7

Rich people associate with positive, successful people. Poor people associate with negative or unsuccessful people.

- Successful people look at other successful people as a means to motivate themselves. Rich people are grateful that others have succeeded before them so that they now have a blueprint to follow

Secrets of the Millionaire Mind - PART II - The Wealth Files #6

Rich people admire other rich and successful people. Poor people resent rich and successful people.

- Attributes to get rich: trusted by others, positive, reliable, focused, determined, persistent, hardworking, energetic, good with people, a competent communicator, semi-intelligent

Secrets of the Millionaire Mind - PART II - The Wealth Files #5

Rich people focus on opportunities. Poor people focus on obstacles.

- Rich people see opportunities. Poor people see obstacles. Rich people see potential growth. Poor people see potential loss. Rich people focus on the rewards. Poor focus on the risks.

- Rich people take educated risks (they do research, due diligence, make decisions based on solid information and facts.)

- Rich people focus on what they want, while poor people focus on what they don't want.

- Rich people get started. poor people don't trust in themselves or their abilities, so they believe they have to know everything in advance, which is virtually impossible, therefore they often lose.

Secrets of the Millionaire Mind - PART II - The Wealth Files #4

Rich people think big. Poor people think small.

- The Law of Income: You will be paid in direct proportion to the value you deliver according to the marketplace.

- The four facgors determining value in the marketplace: supply, demand, quality & quantity.

- People play small because of fear & feel unworthy.

- The happiest people are those who use their natural talents to the utmost.

Secrets of the Millionaire Mind - PART II - The Wealth Files #3

Rich people are committed to being rich. Poor people want to be rich.

- If you are not achieving the wealth you say you desire, there's a good chance it's because, first, you subconsciously don't really want wealth, or second, you're no willing to do what it takes to create it.

- There's actually three levels of so-called wanting:
1. "I want to be rich" (But wealth does not come from merely wanting it)
2. "I choose to be rich" (Being responsible for creating wealth)
3. "I commit to be rich" (Holding absolutely nothing back giving 100% of everything you've got to achieving wealth)


- Getting rich takes focus, courage, knowledge, expertise, 100% of effort, never-give-up attitude, and of course rich mind-set

- Most people who are not financially successful have limits on how much they are willing to do, how much they are willing to risk, and how much they are willing to sacrifice

Secrets of the Millionaire Mind - PART II - The Wealth Files #2

Rich People play the money game to win. Poor people play the money game to not lose.

- The goal of truly rich people is to have massive wealth and abundance, middle class people want to be "comfortable"

WEALTH PRINCIPLE:

- If your goal is to be comfortable, chances are you'll never get rich. But if your goal is to be rich, chances are you'll end up mighty comfortable.

Secrets of the Millionaire Mind - PART II - The Wealth Files #1

- if you've got files in your mind cabinet that are nonsupportive to financial success, those will be the only choices you can make
- if you've got mind files that support financial success, you will naturally and automatically make decisions that produce success. YOU WON'T HAVE TO THINK ABOUT IT.


WEALTH PRINCIPLE:

- You can choose to think in ways that will support you in your happiness and success instead of ways that don't

(Willing to let go of having to do it your way)


Wealth File #1
- Rich people believe "I create my life". Poor people believe "Life happens to me"


- Victim Clue #1: Blame (blame everything but themselves)
- Victim Clue #2: Justifying (If you don't think money is important, you simply won't have any)
- Victim Clue #3: Complaining (When you are complaining, you become a living, breathing "crap magnet")

WEALTH PRINCIPLE:

- There is no such thing as a really rich victim

(it's imperative to "unhook" attention and love)

YOU CREATE EVERYTHING THAT IS IN YOUR LIFE AND EVERYTHING THAT IS NOT IN IT!!!

Secrets of the Millionaire Mind - PART I - Your Money Blueprint - cont'd

We are conditioned in three primary ways in every arena of life, including:

- Verbal Programming
- Modeling
- Specific Incidents

WEALTH PRINCIPLE #4:

- When the subconscious mind must choose between deeply rooted emotions and logic, emotions will almost always win.


VERBAL PROGRAMMING

Four key elements of changing Verbal Programming

- Awareness
- Understanding (where the way of thinking originates)
- Disassociation (keep the current way of thinking or let go)
-Reconditioning

"What I heard about money isn't necessarily true. I choose to aopt new ways of thinking that support my happiness and success"


MODELING
- Identical or opposite as your parents


WEALTH PRINCIPLE #5:

- If your motivation for acquiring money or success comes from a nonsupportive root such as fear, anger, or the need to "prove" yourself, your money will never bring you happiness

- by unlinking your money motivation from anger, fear, and the need to prove yourself, you can install new links for earning your money through purpose, contribution, and joy. That way, you'll never have to get rid of your money to be happy.

"What I modeled around money was their way, I choose my way"

SPECIFIC INCIDENTS

- Recognize your partner's money blueprint as well as to create a new money blueprint between both of you that helps you as partners get what you really want.


WEALTH PRINCIPLE #6:

- The only way to change your level of financial success "permanently" is to reset your financial thermostat

- You can consciously choose to release any belief or way of being that is not supportive to your wealth, and you can replace it one that is

Secrets of the Millionaire Mind - PART I - Your Money Blueprint

WEALTH PRINCIPLE #1:

- Your income can grow only to the extent you do!

WEALTH PRINCIPLE #2:

- If you want to change the fruits, you will first have to change the roots.
- If you want to change the visible, you must first change the invisibles.

(It's what's under the ground that creates what's above the ground; it's what's invisible that creates the what's visible)

The Four Quadrants: Physical World, Emotional World, Spiritual World, Mental World

Affirmation vs. Declaration
- An affirmation states that a goal is happening, declaration states that we have an intention of doing or being something

WEALTH PRINCIPLE #3:

Programming leads to Thoughts;
Thoughts leads to Feelings;
Feelings leads to Actions;
Actions leads to Results