Harford pays $2.55 for a cappuccino at a DC metro Starbucks and questions why customers willingly pay an extreme markup for coffee.

David Ricardo's farmland example reveals that the party controlling the scarce resource always holds the real bargaining power in any market.

Costa Coffee offers fair-trade coffee to charge premium prices from customers willing to pay more for ethically marketed goods.

IBM adds a chip to deliberately slow down its LaserWriter E printer, making the more expensive identical model seem superior by comparison.

Harford imagines a world of complete honesty to show how a perfectly free market would force both buyers and sellers into truthful pricing.

Kenneth Arrow wins the Nobel Prize for proving that equitable economic outcomes can be achieved by adjusting starting positions rather than interfering with market prices.

Harford introduces externalities through the example of a car driver whose fuel purchase forces bystanders to inhale carbon monoxide without any choice.

George Akerlof's used car lot thought experiment shows how hidden information between buyer and seller causes an entire market to collapse.

Insurers offer plans with varying premiums and deductibles so customers self-select into risk categories, counteracting adverse selection from asymmetric information.

Fiona Exon discovers a carton of six double-yolk eggs, which Harford uses as a metaphor to explain the banking crisis's flawed assumptions.

Lehman Brothers collapses and governments use taxpayer money to bail out banks that made catastrophically miscalculated bets on mortgage-backed securities.

The UK government's spectrum auction raises £29 billion for 3G phone licenses, far exceeding projections by running the bidding process like a poker game.

Harford visits Cameroon and finds a country paralyzed by government corruption despite its citizens showing remarkable entrepreneurial energy and initiative.

Mao's Great Leap Forward results in catastrophic agricultural failure and a famine that kills between 10 and 60 million Chinese citizens.

Deng Xiaoping's market reforms raise China's agricultural output by 40%, allowing individual households to subcontract land and keep their own profits.

Harford opens by dissecting the price of a cup of coffee to introduce scarcity and its role in determining who holds market power. He then reveals the strategies businesses use to extract maximum value from different types of customers, from fair-trade markups to deliberately inferior products. Moving to larger systems, he contrasts the efficiency of free competitive markets with the limitations of government intervention and non-market services. The problem of hidden information enters through Akerlof's lemons theory and the banking crisis, showing how asymmetric knowledge can destroy markets at every scale. On the global stage, the failure of Cameroon's corrupt government and the catastrophe of Mao's Great Leap Forward illustrate how misaligned incentives cause nations to collapse into poverty. The book concludes with Deng Xiaoping's market reforms transforming China, proving that when incentives align with individual effort, entire economies can be remade.

The core economic forces shaping everyday decisions and global markets.

Harford warns that economists who over-apply reductive models to complex systems contributed to financial crashes that devastated the global economy.

OPEC orders member countries to restrict oil production, causing prices to rocket and demonstrating how legislation and regulation can create artificial scarcity.

Airlines and train companies intentionally make coach class uncomfortable to push less price-sensitive passengers into paying for more expensive first-class seats.

Supermarkets deliberately use crude, unattractive packaging on value-brand products to repel price-insensitive customers while attracting dedicated bargain hunters.

Tanzania's government captures all profits from rising coffee prices before liberalizing markets, rewarding civil servants instead of the farmers generating the wealth.

Public schooling illustrates how non-market systems lose vital information about consumer preferences, costs, and values that competitive prices would otherwise reveal.

Existing fuel and vehicle taxes fail to raise the marginal cost of individual trips, giving drivers no real incentive to drive less.

Harford illustrates moral hazard through car owners who become careless about theft prevention once their vehicle is insured against loss.

Banks bundle subprime home loans into mortgage-backed securities, creating financial products that appear to safely distribute and minimize default risk.

The Greenspan doctrine — which trusted banks to protect their own balance sheets through self-interest — is exposed as a catastrophic regulatory failure.

US spectrum auction participants secretly embed local area codes in their bid amounts to signal preferred licenses to rivals, collapsing competition entirely.

Mancur Olson's theory that governments behave like bandits explains how corrupt leaders prefer to steal steadily rather than destroy all available wealth at once.

Bruges loses its centuries-long status as a great trading hub when its river silts up and merchant ships can no longer reach it.

David Friedman observes that America can effectively grow cars in Iowa by trading wheat for Japanese Toyotas, illustrating comparative advantage in practice.

Chinese factory worker Yang Li saves her sweatshop earnings, returns home, and opens a hair salon to build an independent life.

Harford reveals how corporations manipulate pricing through tactics like ugly value-range packaging and deliberately uncomfortable economy seating to sort price-sensitive customers from those who will pay more. He shows how non-market systems like public schools and Tanzania's state-controlled coffee industry lose the preference signals that make markets efficient, actively undermining the incentives that create wealth. The banking crisis unfolds through the mechanics of bundled subprime loans and the Greenspan doctrine's fatal overconfidence in self-regulating banks. At the geopolitical level, Mancur Olson's bandit theory of government explains how corrupt rulers in Cameroon exploit trade barriers and isolation to maintain power, while the US spectrum auction collapses when companies exploit loopholes that game theorists never anticipated. The section closes with the historical decline of Bruges and the story of Chinese factory worker Yang Li, who transforms her wages into an independent business and a better life.

The hidden tactics and systemic failures behind markets, trade, and governance.

Harford reveals that landlords — not coffee shops — capture most of the scarcity premium in prime locations by charging maximum rent.

Ricardo's concept of marginal resources shows that economic value is never absolute but always relative to the quality of the next best available option.

Drug dealers use violence to eliminate competition and artificially maintain scarcity, mirroring the economic logic used by legal monopolies in legitimate markets.

Stores jump between full prices and dramatic sales rather than offering slight permanent discounts, exploiting price-blind and bargain-hunting customers simultaneously.

Retailers use self-incrimination strategies — such as offering premium menu items — to get customers to unwittingly reveal their willingness to pay more.

Regional pricing discrimination condemned as greedy for entertainment products is applauded as ethical when companies discount HIV/AIDS treatments for poorer nations.

Non-market public services like policing lose the preference signals that prices provide, making it impossible for citizens to signal dissatisfaction through competition.

Harford argues that charging drivers per mile traveled rather than per vehicle owned would raise the marginal cost of driving and reduce traffic.

Sellers signal trustworthiness independently of their product — like banks building impressive marble headquarters — to prove they are not selling a lemon.

Banks' assumption that mortgage defaults would not cluster collapses when a national housing price slump causes simultaneous mass defaults across the country.

The efficient-markets hypothesis survives the banking crisis largely intact, since unpredictable factors — not market inefficiency — ultimately drove the irrational behavior.

A stable dictator may be incentivized to invest in roads and infrastructure if doing so lets citizens generate more wealth available to steal.

Elinor Ostrom discovers that modern concrete dams weaken Nepal's irrigation systems by removing the mutual maintenance agreements that kept old systems functioning.

South Korea's rapid growth through free trade, contrasted with North Korea's isolationist poverty, illustrates the transformative power of open markets for developing nations.

Shanghai's skyline of thirty new skyscrapers stands where only a twelve-story building existed a decade earlier, symbolizing China's market-driven transformation.

Harford begins by exposing that landlords — not coffee shops — capture the true scarcity premium in prime retail locations, and that all economic value is relative rather than absolute. He reveals that retailers exploit intermittent sales, self-incrimination tactics, and regional pharmaceutical pricing to extract maximum value while appearing to serve customers fairly. The ideal of a perfectly free market is punctured by the demonstration that public services without price signals cannot allocate resources efficiently, while properly designed externality charges can realign individual behavior with broader social costs. A series of revelations about the banking crisis — the false assumption of unclustered risk, the efficient-markets hypothesis's unlikely survival, and a stable dictator's perverse incentive to invest in infrastructure — show how theoretical blind spots carry catastrophic real-world consequences. The paradox of development emerges in Nepal, where modern infrastructure destroys the social contracts that made old irrigation systems work. China's towering new skyline becomes the final symbol of what happens when incentives align and markets are allowed to function.

The revelations and turning points that reframe how markets, prices, and power truly work.