Main Laws of Economics

Submitted by admin on Sun, 08/28/2016 - 19:13

I have taken these from Wikipedia https://en.wikipedia.org/wiki/Category:Economics_laws which lists 32 economic laws.

I have chosen a few and tried to put them into plain language or given examples

Law of Supply and Demand

In a competitive market, the unit price for a particular item will vary until it settles at a point where the quantity demanded (at the current price) will equal the quantity supplied (at the current price), resulting in an economic equilibrium for price and quantity transacted.

In particular, and in my own experience, if there are 100 identical computers at a well-attended and well-advertised auction, then a “market price” will be found (in valuation terms, this is the “open market value”) which will be repeatable across all such auctions.
Working this out, if there are 500 people at an auction, and for a current model of computer that would cost £500 new, then everyone would be prepared to buy one for  £10, 400 people would pay £50, 300 would go as far as £100, 200 would go to £200, 100 to £250, and the market price would then probably be about £280 (some people would buy more than 1)

But, how does this work in the moment – the auctioneer mediates the transaction, but an invisible hand, a sort of collective consciousness, actually generates the market price.

The Law of Diminishing Returns

An example of this is adding more workers to a job, such as assembling a car on a factory floor. At some point, adding more workers causes problems such as workers getting in each other's way or frequently finding themselves waiting for parts. So, producing one more item per hour will cost increasingly more, due to inputs being used less and less effectively. Originally, you might produce 10 cars an hour with 10 men, but if you have 15 men, you might only produce 12 cars – you have put more workers in, but their yield has decreased

The Law of Marginal Utility

Examples of this are

  • beyond some point, further doses of antibiotics would kill no pathogens at all, and might even become harmful to the body.
  • to satiate thirst a person drinks water but beyond a point, consumption of more water might make the person vomit, hence leading to diminished marginal utility
  • it takes a certain amount of food energy to sustain a population, yet beyond a point, more calories cannot be consumed and are simply discarded (or cause disease).

Gresham's law

is a monetary principle stating that "bad money drives out good". For example, if there are two forms of commodity money in circulation, which are accepted by law as having similar face value, the more valuable commodity will disappear from circulation. E.g. if some of the money is made of gold, and some of brass, the gold money will “disappear”.

Dare I add that in all of these there is a "hidden hand" - no-one can explain how these "laws" work, though they are empirically true in most circumstances (each law has a central area where it works well, but then fringe areas where another law may be operating). You could say that they are an expression of the collective conscioisness,  or implicit in the structure of our minds, or that there are unseen beings at work. Most economists prefer not to mention this !