Economics Part 2: Prices

The most basic and simple principal in all of economics is as follows:


People buy more at lower prices. People buy less at higher prices. Producers produce more at higher prices. Producers produce less at lower prices.


In a market price coordinated economy, prices guide consumers and producers to where goods are most valued. This is the reason that these type of economies have a much higher standard of living than countries that are coordinated by a central planner or some kind of command economy like North Korea, Cuba, or the Soviet Union of the past.

Prices are not a good or bad thing. Prices simply convey information to both consumers and producers. The most important information that prices convey are how scarce resources are. When prices are high that usually means that that resource is very scarce and not a lot to go around. Thus beach front property is highly expensive because there is far more people wanting to live on beach front property than there is room available. Some might complain that this means that only those who are "rich" can afford the most scarce products. To an extent that might be true. But at the same time under non-price coordinated economies the leaders of the country make those decisions. I'd much rather trust markets than some super powerful leader who has the power to tell me what and where and how much of something I can have.

Furthermore, due to beach front property being highly price, most individuals cannot afford this property and thus hotels and rental property is often built there allowing society to have an opportunity to enjoy this property instead of an individual being able to afford it to him or herself.

Prices convey information that resources are very limited but they can also convey the message that this good is readily available. Computer prices have fallen in recent years due to the fact that the resources are readily available and much cheaper than they use to be because of this fact. Without the mechanism of prices, people would buy too much of an extremely scarce resource and prices might not convey the information that this item is now readily available to people that it use to not be available to at an affordable price.

More on prices role next time

Economics Part 1: What, Why, and How

Economics is defined best as: The study of the allocation of scarce resources which have alternative uses.

Simply put, economics studies how we get what we need and want when we get it. During the times of the garden of Eden there was no need of economics. Resources were unlimited. God supplied Adam and Even with anything and everything they needed. There was no reason to economize because there were not costs due to resources being unlimited. There was not work to be done in order to produce their food, water, clothing, etc.. God provided unlimited resources for them.

Today and ever since that time period in history, all resources no matter what that resource is, are scarce. Meaning that the sum of everything we want in life is more than what is available in society. We have unlimited wants but not unlimited resources. This is the idea of scarcity: that resources are limited.

Simply put, economics attempts to teach us the best way or "most efficient" way to spread out or "allocate" limited resources or "scarce resources" to the many different ways those resources can be used or in other words to their "alternative uses".

So that is what and why we have to economize. Allow me to finish part 1 with how we economize.

Most countries throughout history have relied on kings and lords to make decisions of how much to produce of a good and where and when to send it. All matter of production and distribution of resources were left up to the leader of a nation or small state or community. The lord was the leader of the manor in a Feudalistic economy. The dictator and the czar were the decision makers in a Communist nations. During Biblical times, kings were the decision makers. For thousands of years leaders made economic decisions.

Beginning around 1776 the idea that a market or the "invisible hand", as Adam Smith(author of the Wealth of Nations 1776) called it, could guide resources quicker and more efficiently. Meaning, instead of one leader sitting somewhere whether that be in Moscow, Russia or in Washington D.C., a market of prices would be in charge of allocating resources which have alternative uses. A market is made up of consumers and producers who are willing to come into agreements about what they want and what they are willing to give up to get it. And if those choices are left up to those consumers and producers and decisions were based on the costs or prices of making those agreements, then these decisions could be far more efficient since those individuals know far more about their own needs in their own situations than some arbitrary leader in some far away city.

Part 2 coming soon

Economics Series

Now that I am teaching economics full time at Stone Memorial High School, my constant focus on economic principles have motivated me to begin a series on my blog in which I attempt to lay out why I think the way I think. I will attempt to show you why an economic way of thinking is so much different than the way of thinking many of you have been taught. But in reality this blog series will teach you about economics the same way my students are being taught it minus the hour and a half five days a week. This blog will not be as detailed but will teach you the concepts that allow me to think in a way that is usually different from many others, but practical in hindsight.

In the coming days and weeks and even months I will be posting many parts to this series that will be brief and easy to read and will teach any of you who are curious, about economics principles, the reason for economics, and how an economist thinks.

I hope you enjoy

"Radical"

My brother recently preached a message about being "radical". Such a revealing message about truly believing what the Bible says as a true Christian. I would hate to try and compare the importance of that message to a political analogy and therefore I will not. But it got me to thinking about the fact that many people would call me a radical as well due to my political views.

Historically speaking George Washington, James Madison, Alexander Hamilton, John Jay, and the many other founders are discussed and talked about as American Heroes. Founders of our nation that aside from slavery are some of the greatest men the word has ever known. King George called George Washington the Greatest man ever when he did not elevate himself up to dictator after the American Revolution.

These men and myself and many that think like me, believe in the idea of Federalism. The idea that local governments and states should make most of the governing decisions in our lives. They were not pro-democracy as some have suggested. In fact Madison feared Democracy and power to people who could not possible have the knowledge at hand to vote on every issue. They also hated the idea of a strong central government though as well. But they all believed in the formation of a "federalist" type government in which the Central "national" government had very little power outlined in the Constitution. While all other powers would be left to the states and local governments.

Yet today I'm considered a "radical" along with many other men in the world who still view "federalism" as the ideal form of a government system. Glenn Beck and Rush Limbaugh to name two men who favor this. Is it really radical to believe the way that those great founding fathers of ours believed? Is it really radical to believe that the federal government is inefficient in nature and that it should not do things that are not in the constitution such as Social Security, Welfare, Medicare, Regulations on business, marriage issues, education, and the hundreds of other issues that it gets involved with.

If these men are great for starting this wonderful nation. We conservative libertarians can't be too "radical". Right?