Read Naked Economics for Free Online Page A

to sell what they produce—all in the face of the same kinds of uncertainties that consumers deal with.
    How? These are massively complex decisions. One powerful feature of a market economy is that it directs resources to their most productive use. Why doesn’t Brad Pitt sell automobile insurance? Because it would be an enormous waste of his unique talents. Yes, he is a charismatic guy who could probably sell more insurance policies than the average salesman. But he is also one of a handful of people in the world who can “open” a movie, meaning that millions of people around the world will go to see a film just because Brad Pitt is in it. That is money in the bank in the risky Hollywood movie business, so studios are willing to pay handsomely to put Brad Pitt in a starring role—about $30 million a film. Insurance agencies would also be willing to pay for the Pitt charisma—but more like $30,000. Brad Pitt will go where he is paid the most. And he will be paid the most in Hollywood because that is where he can add the most value.
    Prices are like giant neon billboards that flash important information. At the beginning of the chapter, we asked how a restaurant on the Rue de Rivoli in Paris has just the right amount of tuna on most nights. It is all about prices. When patrons start ordering more of the sashimi appetizer, the restaurateur places a larger order with his fish wholesaler. If tuna is growing more popular at other restaurants, too, then the wholesale price will go up, meaning that fishermen somewhere in the Pacific will get paid more for their tuna catch than they used to. Some fishermen, recognizing that tuna now commands a premium over other kinds of fish, will start fishing for tuna instead of salmon. Meanwhile, some tuna fishermen will keep their boats in the water longer or switch to more expensive fishing methods that can now be justified by the higher price their catch will fetch. These guys don’t care about upscale diners in Paris. They care about the wholesale price of fish.
    Money talks. Why are the pharmaceutical companies scouring the rain forests looking for plants with rare healing properties? Because the blockbuster drugs they may uncover earn staggering amounts of money. Other kinds of entrepreneurial activity take place on a smaller scale but are equally impressive in their own way. For several summers I coached a Little League baseball team near Cabrini Green, which is one of Chicago’s rougher neighborhoods. One of our team customs was to go out periodically for pizza, and one of our favorite spots was Chester’s, a small shack at the corner of Division and Sedgwick that was a testimony to the resiliency and resourcefulness of entrepreneurs. (It has since been demolished to make way for a new park as part of an aggressive development of Cabrini Green.) Chester’s made decent pizza and was always busy. Thus, it was basically an armed robbery waiting to happen. But that did not deter the management at Chester’s. They merely installed the same kind of bulletproof glass that one would find at the drive-up window of a bank. The customers placed their money on a small carousel, which was then rotated through a gap in the bulletproof glass. The pizza came out the other direction on the same carousel.
    Profit opportunities attract firms like sharks to blood, even when bulletproof glass is required. We look for bold new ways to make money (creating the first reality TV show); failing that, we look to get into a business that is making huge profits for someone else (thereby creating the next twenty increasingly pathetic reality TV shows). All the while, we are using prices to gauge what consumers want. Of course, not every market is easy to enter. When LeBron James signed a three-year $60 million contract with the Cleveland Cavaliers, I thought to myself, “I need to play basketball for the Cleveland Cavaliers.” I would have gladly played for $58 million, or, if pressed, for $58,000. Several