Econ 101

 

Many people think that economics is complicated and difficult to understand and it is true that advanced economics is not that easy to understand but simple economics is easy to understand.

There are two components of economics:  supply and demand.  As far as supply is concerned, the more a company produces, the more it costs.  Reason:  it takes more labor and more raw materials for 1,000 units than it does for 100 units.

Demand pretty much follows the mindset of the the consumer.  The more the consumer wants, the cheaper each unit should be.  RATIONALE:  100 pencils should cost less per pencil than buying 1 pencil.

Two lines on a graph represent these two components...  like a large X...   (see below)

Demand moves from right to left downward and supply moves left to right upward.  Where these two lines cross each other is the ideal PRICE/QUANTITY.

Price starts at ZERO and increase as the line moves in the direction of the arrow.  Quantity starts at ZERO and increases as the lines moves to the right.

For one pencil the price is high but if I want more than one pencil the price declines.

ALL ECONOMICS is based upon this diagram.  For example, if the supply line represents the number of high school graduates looking for employment, then as you increase those looking for jobs, then the price that companies are willing to pay for high school graduates decreases.

You may want more money but the only way you are going to get more money is if you have a talent or a skill that the other graduates do not have...  MAKING YOU SPECIAL...  Then you are like ONE PENCIL and the employer is willing to pay a higher price for you...

It is just that simple...

Say for instance that everyone in a city gets a raise at the same time.  What this means is that the supply of money has increased...  and, the demand for products has increased as well.  Unfortunately, the companies in that same city do not increase there production to compensate for the increase in money, then the cost of products increase...  

WHEN THIS HAPPENS YOU HAVE INFLATION...

This is what happened during COVID and we still have not been able to recover and prices have stayed high...

SIMPLE BASIC ECONOMICS