An economy is
An economy is people making, trading and using things. Not a building. The same loop that fills a shop also sets your rent, your wage, and whether the bus still runs.
This loop, scaled up, is an economy. When it snags, prices, jobs and shelves move for everyone.
Scarcity & trade-offs
You cannot have everything. Time, money and materials run out, so choosing one thing means giving up another. What you gave up is the opportunity cost.
8 free hours and £367 earned. The next free hour costs £10 of earnings.
Made-up numbers for one week.
Supply & demand
Buyers want more at low prices. Sellers want to sell more at high prices. Price settles where those two willingnesses meet.
- Demand
- Supply
Clears at £6.00, 8 units.
Toy numbers, not a real market.
Equilibrium & shocks
Markets rest at a crossing. A shock moves supply or demand, and price and quantity slide to a new crossing. Which way they move depends on which curve was hit.
- Demand
- Supply
Nothing has moved. The market sits at its crossing. Now £6.00 and 8 units, from £6.00 and 8 units.
Toy numbers, not a real market.
Incentives
People respond to costs and benefits. Make something cheaper or easier and you get more of it; make it costlier and you get less. Not all incentives are money.
Twenty people pick a way to work. Most drive because it is faster for them.
Qualitative toy. Counts are made up.
Markets & failure
Markets work well when the costs and benefits land on the people choosing. They fail when someone else pays, information is bad, or one seller dominates.
- Demand
- Private cost
- Social cost
Market sells 8 units at £6.00. Counting the spill, 6 units at £7.00 would be better. The extra units look cheap because someone else pays.
Toy numbers. The spill is a cost left out of the price.
GDP, inflation, unemployment
GDP measures what an economy produces, inflation measures how fast prices rise, and unemployment counts people who want work and cannot find it. Together they sketch the state of an economy.
- GDP growth
- Inflation
- Unemployment
In 2022, output grew +4.3%, prices rose +9.1%, and 3.7% of people who wanted work did not have it.
Illustrative series. No live data.