Costs of Opportunity

The slopes of the demand curves depend on how people see the concessions that the changes in the prices make them do. For example, imagine that the price of a good you buy right now goes down from costing $15 to costing $14. How do some people react to that kind of situation? This would depend on what the person feels about the specific good in relation with other goods in which the person could spend his or her money.
  • You can buy much more of that good because more of it would make you happy and you are therefore glad that the price went down to $14 instead of $15.
  • You can increase your buy just a little bit, because even though it is nice to now be able to buy that specific good at $14 instead of $15, more of it do not make a difference or make you more content. In this type of situation, a cut on the price allows you to have some extra money to buy other things.

In terms of curves, these different reactions lead to different slopes. A person that buys a lot more when the price goes down has a flat curve on the demand, whereas the people, whose buys barely vary when the price goes down, have a very steep slope.

Supply: We are now going to see how economists consider the supply of goods and services. The subjacent key is that offering things is expensive and you need to pay so that they offer you what you want. Even more interesting though, is the fact that the more you want them to offer, the greater the cost of offering each additional unit will be. In other words, the first units tend to be relatively cheap to produce, whereas the last ones are more and more expensive to produce all each time.

Given that the costs of production increase as you produce more, if you want the producer to make more and more, you will have to pay them more each time. This fact implies that the supply curves have a positive slope.

Beginner Money Investing Variations in Prices Costs of Opportunity Differentiating the Sale Price from Production Cost Market Stability