Economic theories are as wide as an economists’ vision to think. In the Steven Landsburg book The Armchair Economist – Economics and Everyday Life, Landsburg takes many of these economic theories and relates them to everyday type scenarios and makes them understandable to a beginning economist. He breaks his book into six sections each relating to different types of economics, from personal to national theories.
Landsburg talks about the power of incentives in his first chapter. What he is referring to is how incentives drive peoples decisions to do things in life. He makes an analogy that Seatbelts kill. This statement refers to the added protection one gets from wearing a seatbelt, which will entice someone to take greater risks while driving a vehicle. We as consumers are bombarded with incentives everyday in the market place. Incentives, come in all forms, sale prices, free-bees, coupons. Incentives are designed to make you do something NOW instead of putting it of until later. Incentives are not always a good thing, such as in today’s housing market. Homebuyers were offered sub-prime and zero percent interest rates to purchase homes. This allow buyers to buy a bit more home than maybe they were qualified to get. Buyers made these decisions at the time because they looked safe, but in the long run many of these buyers have had to give up these homes due to bank foreclosure.
Landsburg also talks about maximizing our efficiencies. He relates this theory into an idea of why Rolling Stones concerts always sell out. Is it because they play good music? Maybe. Most likely it is because its tickets are priced right. Pricing tickets is a theory of Supply and Demand. The demand curve suggests that as prices go down the demand for that product will go up. So if the concert promoters’ price their tickets too high chances are they may not sell out and also limit the number of consumers who are capable of purchasing...
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