This post will be the first in a series of posts on economics. I have decided to do this series based on the needs of my students. If you have any questions, please post a comment and I will get back to you ASAP.
Economics is basically the study of how society makes choices about the allocation of scarce resources (i.e., good and services). Goods and services all have value. This value is determined by how scarce the good or service is. The two factors that determine scarcity are supply and demand. The supply of a resource is how available it is to people; the demand is how much people want it. The more there is of a good or service, the easier it is for people to get it and the less scarce the resource. The less scarce it is, the lower its value and thus its price. The converse is also true: the less there is of something, the harder it is to access it, the more its value and the higher its price. There are two principle things to remember here:
1. The value of an item is inversely proportional to its supply;
2. The demand of something is directly proportional to its value.
A little more on value…the supply and demand of a resource together determines, in part, its price. The price is the amount the seller and buyer have agreed to pay for that good or service.
Next time, we will talk a little bit about efficiency and utility.