If the price of petrol rises, consumers tend to demand less of it. They may use their cars less and buy bicycles, and as a result, the price of bicycles rises and resources shift towards the manufacture of bicycles as new producers enter the market. In this way, different markets are connected, and a shock…

It is an interesting concept that violates the Law of Demand. As we have learned already, economists classify goods into two broad categories – 1) Ordinary goods (Normal Goods), 2) Giffen goods (Inferior Goods). You can learn more about these two types here. This blog will discuss giffen goods which fall into the category of…

People respond differently to changes in prices for different goods. Suppose, for example, that the price of jam rises: consumers might easily switch to marmalade, leading to a fairly large fall in the demand for jam. Demand for jam is thus sensitive to changes in prices – what economists call elastic demand. In contrast, consider…

A basic “law’ of economics is that when the price of a good rises, people demand less of it, and when the price falls people buy more. The law of demand states that, “conditional on all else being equal, as the price of a good increases (↑), quantity demanded decreases (↓); conversely, as the price…

In a free market1, the price of a good is determined by supply and demand. The market price of wheat emerges through the interaction of the Supply of wheat by farmers and the demand for it from flour mills and food manufacturers: when the level of supply is equal to the level of demand the…

Why Is it that a glass of water. so vital to life, is worth hardly anything, whereas a diamond, which has no practical use, is so valuable? This is the so-called paradox of value, discussed by philosophers and economists down the ages, and perhaps most notably by the 18th-century Scottish economist Adam Smith. The paradox…