Basic Economics

But the introduction of free or subsidized medical care leads to vastly greater usage, simply because its price is lower, and this entails vastly greater costs than initially estimated.

Appeals to people to limit their purchases during an emergency, like other forms of non-price rationing, are seldom as effective as raising prices.

As elementary as all this may seem, in terms of economic principles, it was made possible politically only because the British colonial government was not accountable to local public opinion. In an era of democratic politics, the same actions would require either a public familiar with basic economics or political leaders willing to risk their care

Economic policies need to be analyzed in terms of the incentives they create, rather than the hopes that inspired them.

The real cost of building a bridge is whatever else could have been built with that same labor and material. This is also true at the level of a given individual, even when no money is involved. The cost of watching a television sitcom or soap opera is the value of the other things that could have been done with that same time.

Continuing transactions between buyer and seller make sense only if value is subjective, each getting what is worth more subjectively. Economic transactions are not a zero-sum process, where one person loses whatever the other person gains.

Prices are not just ways of transferring money. Their primary role is to provide financial incentives to affect behavior in the use of resources and their resulting products.

Although a free market economic system is sometimes called a profit system, it is in reality a profit-and-loss system—and the losses are equally important for the efficiency of the economy, because losses tell producers what to stop doing—what to stop producing, where to stop putting resources, what to stop investing in.

Many people see prices as simply obstacles to their getting the things they want.