Freakonomics Chapter 3

Freddie Allen
Freakonomics Chapter 3 Questions
1. What is "conventional wisdom?" What are some ways that "conventional wisdom" comes into being?
Conventional wisdom is the accepted fact on a certain subject, and can be brought forth by
experts and journalists, or even advertising.
2. Explain why challenging the "conventional wisdom" with regard to a sticky social issue may be
difficult to do.
Usually, conventional wisdom, whether it's true or not, is so widely accepted that even if there
was a valid argument against something, it's very hard to change someone's point of view.
3. Considering this chapter's analysis of the transformation of Listerine from an antiseptic to a cure for
halitosis, what can one conclude about the effect of advertising on market demand for a good or service?
Advertising is a great way to change conventional wisdom, which in this case helped to make
people believe that Listerine was a cure for halitosis thus skyrocketing sales.
4. Explain how the incentives of police departments and the public media gave rise to explanations of the
rising crime rate in the 1980s that were totally wrong.
The police departments wanted get more resources so by telling the public that they had state of
the art weapons and more money than they knew what to do with this was shown to be an effort that was
worth it.
5. Describe, in general terms, the organizational structure of the Black Disciples street gang. How is it
similar to the organizational structure of most business?
Most businesses have the business owner, which happened to be the leader of the gang, the
employees, which were the dealers in the gang, and the board of directors, which were the people that
gave the gang leader the right to sell in certain areas.
6. Explain how four years of financial records of the Black Disciples street gang found their way into the
hands of a University of Chicago graduate student.
A man named Sudhir Vankatesh started hanging out with a gang to figure out the way they ran
their "economy" and a man named Booty who was scared of getting killed made sure to give him a couple
spiral notebooks which contained data and information on the gangs finances.
7. How did J.T., a branch leader of a Black Disciples street gang, acquire and maintain a monopoly over
crack cocaine within the territorial domain of the gang?
He had a business degree from college and used that to his advantage in the Crack dealing game.
8. What are monthly costs incurred by J.T.'s unit of the Black Disciples? Which costs would be
considered fixed costs? Which would be considered variable costs?
Fixed Costs: Wholesale cost of drugs, board of directors fee, mercenary fighters, weapons,
miscellaneous.
Variable Costs:Combined wages to officers and foot soldiers
9. Explain how a "tournament" or "winner take all" labor market works. Why would a street-level drug
dealer be willing to accept low pay and poor working conditions?
Tournament labor markets usually mean that many people are going against eachother to get a
very big "prize" and because that prize is so large, the skills and costs it takes to get make it very hard to
win, like competing in a lottery. Drug dealers worked for the low pay and working conditions so that they
may possibly rise to the top and make much more money.
10. Give your own examples of a "tournament" type of labor market.
Sports such as basketball and football are obvious types of tournament labor markets. Another
tournament type of labor market would be someone trying to get the starring role in a hit blockbuster
movie.
11. How do the incentives of the street-level drug salesman differ from those of the gang leader/ franchise
owner? Are they both attempting to maximize the profits of the gang? Why or why not?
The salesmen is looking out for himself while the gang leader is looking out for the gang and it's
profits as a whole. The gang leader is trying to maximize profits unlike the salesmen who is trying to
maximize his reputation so that he may one day become a leader. Those who are talked about in a good
way make the most money.
12. How did the invention of crack cocaine transform the urban street gang?
It gave the gangs a way to make a quick profit basically that was cheap and a very big seller.
13. According to the data cited in this chapter, civil rights laws and a shift in the attitudes in the United
States regarding race helped to improve the status of black society. How did crack cocaine alter that
progress?
Crack pushed back the progress almost 10 years back from where they were before it was
invented.
14. Based on the examples in this chapter, what does the invention of better and cheaper production
methods do to the price and sales of a good or service?
It makes it so the price gets dropped, a higher amount of people will buy the product due to the
fact that more people can afford it. Also since the product would be so cheap, people would buy more and
more.

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Freddie Allen

Freakonomics Chapter 3 Questions

Variable Costs:Combined wages to officers and foot soldiers

10. Give your own examples of a "tournament" type of labor market.

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