Barter. Trade. Money. Value. Credit. These are the things an economist studies. As far back as any of us can remember, trade has always been an integral part of our society. It only seems logical that some of us would study it, learn all of the tricks and nuances of the art, and use it to our advantage.
Look around yourself, at your neighbors and friends, and your local shopkeepers. Look at the traveling merchants, and the beggars on the street corners. What makes them different? Why is it that some people always seem to have plenty of coin to spare, while
others struggle to gather enough pennies to eat? For some, it is just circumstance, or luck, but for a few, it is because they have discovered something important. They have learned how the economy works, or least a part of it, and they have used that knowledge to benefit themselves.
At the core of all knowledge of the economy, is one principle that drives all else: the law of supply and demand. There are four parts to this law, and together they explain much of how the economy functions.
- If demand increases and supply remains unchanged, a shortage occurs, leading to a higher equilibrium price.
- If demand decreases and supply remains unchanged, a surplus occurs, leading to a lower equilibrium price.
- If demand remains unchanged and supply increases, a surplus occurs, leading to lower equilibrium price.
- If demand remains unchanged and supply decreases, a shortage occurs, leading to a higher equilibrium price.
There are three factors referred to by the law of supply and demand that can change, and each has an impact on the economy in a different way:
- Demand
- Supply
- Price
As demand for a product or service rises or falls, that change has a direct impact on the price of that item or service. If demand increases, sellers have an opportunity to raise their prices and make a larger profit.
As supply increases or decreases, there is also a direct impact on the price, and possibly on the demand as well. For example, if an item is so common that anyone can easily obtain it, then it will not be worth much money. On the other hand, if it is extremely difficult to obtain, and also desirable, it will be worth more.
Price also has an impact on the other factors, both supply and demand. If the price is raised too high, demand will start to drop off. On the other hand, if you drop your price too low, one of your competitors will probably buy you out and resell for a profit. That is why it is important to find the middle ground, the balance between the two extremes.
There is much more to the economy than the law of supply and demand, but it remains an important subject of study for any economist. No matter the medium of exchange, be it barter, gold coins, or services, these basic principles remain the same.
As for the deeper secrets of the economy… you will have to look elsewhere. Such secrets are carefully guarded by economists, and shared only with the most trusted of students. If you would learn more, you might start by proving yourself one of the senior economists of the Merchant Guild of Koguryo.
Best of luck in your studies!
Signed,
Blubber
Legendary Economist
Economist Co-Founder