Dan Tomlin

Naked Economics Ch1

Markets play a key role in every economy other than a centrally
planned communist economy. Because the United States is a free market
economy, we have a lot of experience with markets and their causes and
effects. All transactions and experiences are a result of an analysis of costs
and benefits. The market system is extremely complex and can be analyzed
from different angles and perspectives to 7 greater understanding of it and
how it functions.
Markets are extremely powerful because they dictate what and how a
society and an economy do and consumes. A market economy is similar to a
democracy in the sense that the people have the power whether or not it is
the consumer or the corporations. In a market economy, all of the money can
be traced back to the households. This is because the people in the
households spend the money and earn it back through wages. The market
economy also maximizes efficiency because rather than set prices, it has
competition and innovation that drives prices and wages depending on the
costs and benefits and supply and demand for the particular market. Because
supply and demand are usually inversely related, there is a balance between
the two judging by how much demand there is for a product in a market and
how much supply there is from the various firms and companies. This balance
of supply and demand sets the price for a specific good or service. Price
discrimination can result from this and is a crucial aspect of the consumers
perspective in a market.

Companies use price discrimination in order to maximize profits

depending on the type of consumer that they are making a transaction with,
shifting the price to accompany the shift in the demand curve. Wheelan uses
the airlines as an example, describing how they Learn to distinguish
business travelers from pleasure travelers and then charge each of them a
different fare. (19) The airlines notice that the demand for airline tickets is
much higher for business travelers on the weekends than pleasure travelers
during the week, so they charge much more on the weekends than during the
week. The shifting demand therefore shifts the price that the airlines charge
for their service. However, no matter the price, both the airline and the
consumer whether for pleasure or for business benefit from the transaction.
Because the airlines charge more during the weekend when business
travelers fly, the airlines make an overwhelming profit in order to compensate
for the low revenue generated from the pleasure travelers during the week.
The consumer also benefits from this transaction because the pleasure
traveler does not have to spend as much money and are allowed to have
more fun on their vacation. Similarly, the business traveler is traveling simply
to make more money and is able to spend the extra money to make more in
the long run. No matter how the prices are set, both the buyers and sellers
win even with price discrimination because the consumer drives the market.
Markets are so powerful because they drive the society and economy
and how they both function. Wheelan describes the market economy as a
powerful force for making our lives better. (20) The market economy is an
ever-changing system that is a dominant force in how we live our lives and
the degree of happiness that we have. Markets drive prices and supply and

demand and every aspect of the laissez-faire economy and should be

analyzed and dissected in order to gain a greater understanding of our
malleable economy.

Wheelan, C. (2002). The Power of Markets. In Naked economics: Undressing the dismal
science (pp. 3-29). New York: Norton.