Tuesday, 30 November 2010

Why most expensive items should not be called investments (Part 1 of 3)

Thick books full of equations deter most people from learning economics. The suspicion that there might be something wrong with the whole science is not unfounded. Otherwise, if economists are so knowledgeable, how do you explain that most of them are not wealthy?

Every course on economics begins with the law of supply and demand, which is considered the baseline of the science. This principle teaches that consumers buy fewer units when prices are high, but that on the other hand, when prices are low, for the same amount of money, you can get much more.

Since people have been acting in this way since the beginning of time, one might wonder if such wisdom justifies the cost of taking an economics course. My answer is rotundly positive. No matter how simple principles look, their applications demand subtlety and can lead to many blind alleys.

To be continued in Part 2

[Text: http://johnvespasian.blogspot.com]

[Image by un punto in movimiento under Creative Commons Attribution License. See the license terms under http://creativecommons.org/licenses/by/3.0/us]