This article explains the basics of economics. As in: the market, pricing, stuff like that.

I am still working on this and I wrote it up very fast. I think it gets across the basics well enough, but it could definitely be re-written to be more…pleasant to read afterwards.

It’s also a bit ramble-y, which I’ll fix eventually I swear.

The absolute basics of all economics starts with Supply & Demand. If you do not understand these fundamentals, you will fail to understand any kind of economics. Including why some economic systems are non-functional (ahem, socialism).

Supply & Demand are less of a strictly economic law and more of a law of nature that manifests in the economy.

Supply is a measure of how much of something there is. It’s pretty simple and self-explanatory.
Demand is a measure of how much that something is wanted in an economy. It’s also pretty self-explanatory.

What’s a bit more complicated – and what needs to be grasped – is relationship between those two.
Supply & Demand want to exist in a state of equilibrium. This is the ideal state where the supply perfectly matches the demand for it. That state is also difficult to reach.
If they are not in a state of equilibrium, then the value of supply will change to match the demand.
At this point, ‘value’ is represented in price which is expressed in a given currency, though neither of those are technically required for understanding how supply & demand works.

If the demand is higher than the supply, then the price of the supply increases. By increasing the price, the demand lowers because those demanding it are gradually less willing to obtain the supply.
If demand is lower than supply, the price of supply will decrease which causes demand to rise. This continues until a state of equilibrium is reached.

This doesn’t happen in all situations and modern economies tend to appear more rigid. An alternate situation is that supply starts being increased to match demand, though the price would still usually increase. Think about scalpers and whatnot if you have trouble picturing this.

Now, I stated that Supply & Demand is more of a law of nature…but what does that mean? It means that technically everything is in some form affected by some kind of Supply & Demand…because it’s just a natural result of scarcity.
Think about it like this: if the number of predators in a given ecosystem increases, then the population of prey will start to decrease as well. This causes a ‘collapse’ if the population of prey is too low, which results in the population of predators crashing. Eventually, a state of equilibrium is reached in which the population of prey and predators matches to a degree where both survive long-term.
This is basically just a “market economy” in nature…just that most people don’t think of it like this.

As Supply & Demand is just a thing, it also means that not understanding how it works can result in serious misjudgements and misunderstandings about how the economy works and what solutions can/should be implemented.
An engineer who doesn’t know how to count isn’t going to be a good engineer, right?

Technically – and I know this might be controversial – you might not even necessarily need to know how to count to understand the economy. This is because all the numbers and prices and whatnot are just ways of making it easier to picture Supply & Demand in action. If you understand it intuitively, you should be pretty much fine in most cases even if you can’t count.

Money is just a representation of ‘value’. It’s a bit more complicated than that though, but I’m gonna keep the explanation brief.

We represent ‘value’ in money because, for the purposes of trade, it’s convenient. That’s it.
If we didn’t have money, we’d either be forced to rely on barter or credit. And then we’d switch to money really fast anyway.
Credit is itself a complicated topic that I’ll choose to ignore for now because it isn’t necessary to understand the basics.

What is ‘value’? Well ‘value’ is an abstract which roughly represents how useful/wanted a given thing is.
Gold is less useful than copper, but because gold is shiny it’s desired more which means it’s more ‘valuable’.

Here it’s necessary to point out something that is very useful to understanding things like pricing: price is individually subjective but collectively objective. But what does that mean?

Let’s use an example. Let’s say that I make two hotdogs. It cost me $0.50 to make each hotdog. Some guy comes along and he agrees to pay $1.50 for it. Then you come along and you pay me $2.00 for the hotdog.
Which of those prices represents the true value of the hotdog?
The answer is that none of them do. This is because ‘value’ – and, by extension, the ‘price’ – is relative. All of them are a ‘correct’ representation of the value of the hotdog, just that what’s ‘correct’ varies based on the surrounding context.

The reason some guy paid $1.50 while you paid $2.00 is because those are the prices that we had agreed upon. He was willing to pay $1.50 for the hotdog and I agreed to sell it to him for that amount. Meanwhile you were willing to pay $2.00 for it, so I agreed to that too. If you had known the other guy had paid less, you’d probably want to pay that much too.
Basically every price of any good or service is individually negotiable like this. There are parts of this ‘equation’ that are kinda, sorta, not really set in stone – like me spending $0.50 to make each hotdog – but generally this applies.
Does this mean that all prices are nonsense and, in fact, nothing is worth anything? No, that doesn’t mean it. Prices may be individually negotiable, but if we factor in everything else the situation changes rapidly.
So you aren’t paying $2.00 because every hotdog in existence is worth exactly $2.00 but because within your given context, that’s how much the hotdog was worth to you.

Basically, while the difference between what you and that guy paid might seem significant, if we consider the market as a whole…it might actually be completely normal. Let’s say that the price of hotdogs within this market actually drift between $1.25-$5.00 and we can see that, actually, there’s not that big of a difference at all. Now, if a hotdog were sold for less or more…that would be a significant difference.
I think it’s generally here that we start talking about ‘market conditions’, which simply refers to the situation in a market: how the thing being sold relates to everything else being sold; what affects the demand of the thing being sold; what affects the production of the thing being sold and so on.

While the price is individually negotiable…well, nowadays especially, the price tends to be ‘locked’. But it’s still usually related to the rest of the market.

Why am I selling the hotdogs at that specific price? Well, because I’m probably looking at my competitors. Maybe I see that my competitor is selling hotdogs at a fixed price of $2.50. So I’m trying to undercut him by being more flexible with pricing on the one hand and for consistently selling at a lower price. My competitor may respond by lowering the prices himself.
This is competition and it can manifest in thousands of different ways, so I’ll leave that for later.