Naked Economics Ch. 1-6 Summaries

Topics: Market failure, Environmental economics, Externality Pages: 3 (795 words) Published: March 19, 2012
Chapter 1
The Power of Markets
Charles states as his number one point that economics is really unpredictable. He uses the Coca-Cola Company as a fine example for this. That company starts of turning out to be loss and failure but within 10 years since it started it turned out to be very profitable. Charles also states that markets are extreme powerhouses over individual’s daily lives. Markets are also self-correcting because they use prices to allocate their resources. Individuals all work for their own self-interest so they can be better off in the society. One very good example the author provides is the Soviet’s socialist economy and how it failed because the bureaucracy controlled the economy, or basically he’s saying that there shouldn’t be a single person that controls the market and it should be the people.

Chapter 2
Incentives Matter
Incentives are the best way to create policies. Government, however, should regulate these policies so they don’t deviate from their original reasons. For example, once something gets rare, it becomes more and more scarce and also more and more expensive. Like the Rhino’s horn, an example Charles gives in the chapter, made the black rhino endangered because its value was so high that it kept increasing when it got even scarcer. This is a fine example of why incentives need to be regulated. Material things need to bring in profit; if they don’t then they are dispensable. This is maximizing the use of scarce resources. Incentives are the biggest things that motivate individuals.

Chapter 3
Government and the Economy
One big task for the government is that it deals with externalities. The economy on its own won’t do well because the ordinary person would try to save by cutting corners to maximize personal benefit and when that happens, social benefit drops. This is basically having people aiding themselves with others money. This theory also works vice-versa. That’s why the government is a valuable...
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