Harford Undercover Economist, Chapter 1

Summary In chapter one of Tim Harford's book, The Undercover Economist, he discusses how scarcity and bargaining power impact the economy. He uses an example of farmland to create a connection to one of today most popular resources, coffee. The farmer has to choose between the meadowland where its more expensive but where rich crops could grow or the scrubland where its hard to cultivate but its less expensive.Then there is also another term Harford uses, it called marginal land. The marginal land is place in between being cultivated and no being cultivated. Ultimately the landlord has the power to determine the price of rent for these regions. This concepts correlate directly with coffee shops, coffee shops that are put in the most convenient location and timing will have the most success. So landlords will charge rent more for coffee shops in areas where there will be more product productivity. Even though price is a factor that consumers tend to skew their spending, when individuals are in a rush to work in major cities they tend to become "price blind." Later in the chapter Harford is able to see how scarcity directly creates a bargaining power. This change in balance is the reason why there are sudden rises and falls in prices, its all about supply and demand and who has the power to budge. 

Questions
Scarcity power is when there is a shift in scarcity it follows with a shift in bargaining power. What this means is the more scare a product is the company owner has the power to charge the consumers more, but this role can also switch. When there is more supply and not enough demand the owner will decrease the price to appeal more to the consumers. The way store owners or retailers try to take advantage of their scarcity power is by having prime location and by increasing the prices or having the consumers bargain until the owner settles and gets the highest price. This is what famers do and what coffee shops do. They compete for the meadowlands so they can have the most productivity, but the cost is in the expense the landlord charges for rent.The significance of marginal lands in determine prices of rented property is that it creates competition, so rather than paying high rental prices, consumers will be likely to pay less for a worse location. The downfall to having marginal land rather than a meadowland is that since the location isn't prime they aren't going to make as much productivity as someone who rents out the meadowland for more money. Some external factors that can drive up prices are location, rent, competition and marginal lands. The location specifically can drive up prices because if a store is located in a place where the owner can raise prices and consumers won't care as long as they get the product they demand. This why Starbucks can manage to have such high coffee prices, because they are located in the most convenient locations. In todays job market having a college degree of a (BA or BS) will help to an extent, but since they don't hold much scarcity power because it is more scarce to continue ones degree for a masters or doctorate.