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My Favorite Thoughts From Thomas Sowell’s “Basic Economics” (Part 1)
By JLP | July 14, 2009
I have been trying to read Thomas Sowell’s Basic Economics 3rd Ed: A Common Sense Guide to the Economy
I have to tell you, this book is interesting. I have been a fan of Dr. Sowell’s no-nonsense writing style (he’s a libertarian) for several years now, which you can read here.
Anyway, as I read through Basic Economics, I’m going to underline the parts that really stand out and highlight them here on AFM. I hope you enjoy them. NOTE: I’m reading the red edition of the book, which is an older edition than the one I linked to.
Chapter 1 – What is Economics?
Economics is the study of the use of scarce resources which have alternative uses.
What does “scarce” mean? It means that what everybody wants adds up to more than there is.
If each resource had only one use, economics would be much simpler.
PART I: PRICES AND MARKETS
Chapter 2 – The Role of Prices
Prices play a crucial role in determining how much of each resource gets used where. Yet this role is seldome understood by the public and it is often disregarded entirely by politicians.
This so true. He then goes on to mention that people usually tend to look at prices as obstacles to their getting what they want.
From the standpoint of society as a whole, the “cost” of anything is the value that it has in alternative uses.
…high prices are often blamed on “greed” and people often speak of something being sold for more that its “real” value, or of workers being paid less than they are “really” worth.
I have been guilty of this assumption many times.
To treat prices as resulting from greed implies that sellers can set prices where they wish, that prices are not determined by supply and demand.
The fact that prices fluctuate over time, and accoasionally have a sharp rise or a steep drop, misleads some people into concluding that pices are deviating from their “real” value.
Although I agree with what he is saying here, I do wonder when the price of gas spikes when oil prices rise but then don’t fall nearly as quickly when oil prices plummets.
…people tend to do more for their own benefit than the benefit of others.
I’ll continue to add my favorite thoughts and quotes from the book as I continue to read through it. If you haven’t ever read a book on economics, I would suggest you check out Basic Economics.
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Topics: Books, Economics | 4 Comments »
July 14th, 2009 at 9:21 pm
JLP, you might also find Hazlitt’s Economics in One Lesson interesting. See: http://jim.com/econ/chap01p1.html
July 14th, 2009 at 9:41 pm
I seem to remember a concept from my Econ course that might help explain the lag time for falling gas compared to rising gas prices, in an economic sense. I don’t remember the exact phrase, but it essentially boils down to a lack in the change of demand. As the supply goes down, the price goes up. In response to rising prices, the demand should go down, but for gas in particular, it doesn’t, because people either don’t change their consumption, or find that significant changes (buying a more fuel efficient car or moving closer to work), are difficult to put in place quickly. So the price of gas stays high, because the demand will support that price. As people change their consumption, the price slowly trickles down.
This doesn’t account for supply side issues (lower refinery production as a result of changes in oil price or demand for other petroluem products).
Sorry for being so long winded, sometimes it helps me to spell everything out, even if no one reads this comment. If by the way I’m completely wrong, I’d love to know.
July 15th, 2009 at 6:05 am
I love Thomas Sowell’s writing. I have been listening to this book using Audible. I love to listen to it when I go on a long drive. If you haven’t checked out Audible, I highly recommend it.
July 21st, 2009 at 9:00 pm
I think the reason that gas prices do not follow a normal economic cycle is due to government(s) interference. When the government starts to step in , the normal supply & demand cycle gets thrown out of whack.