Who Feeds Paris?

The first chapter of Naked Economics begins with an interesting story about how an advertising strategy by Coca Cola Europe proves to be a losing proposition at the start of 1989 but ends in impressive results by the end of 1995. There are myriad of different ways everyday that make modern economy work. Wheelan begins with the question, "Who feeds Paris?" as a starting point to explain how markets are powerful influences in an individual's every day life. Wheelan explains how markets use prices to allocate scarce resources and how markets are self-correcting. Wheelan expounds on how the market gears up and aligns incentives such that individuals work for their own self-interest for an improved standard of living. In no uncertain terms, the author explains how the Soviet socialist economy failed because the bureaucracy of the government controlled the economy. This chapter makes a strong stand that it is not fair to impose preferences on others. He alleges that it is "bad economics to impose preferences on individuals whose lives are much different from all the rest." (pg. 7)

Wheelan continues to use Cuba's economy as an example of bad economics. Wheelan pinpoints the failure of the economy based on the lack of competition. Competition between two businesses boils down to who can produce a product for the least and sell it for the most; therefore creating the best total revenue. Revenue is defined by the total cost minus the total profit.  In a free market economy, competition allows the more efficient and productive companies to flourish, leaving the less capable corporations in the dust.  In Cuba however, a product cost the same at several different locations. Through this type of economy, businesses would close simply based on location. If two sellers offer the same good at the same price, the consumer will use their utilities, or money, to purchase the good from the more convenient, or closer, location.