Goods, Prices, and Market

Goods, Prices, and Market

“Economists study prices of goods in markets.” Every word in this sentence has familiar, everyday meaning except for “economist”. And because of those pesky economist, these other words have meanings in this blog that are not quite the same as their everyday ones. For the moment let’s assume market has the familiar meaning – we’ll discuss what i mean by the term in more detail in a moment.

 

Goods.  Many of the principles of how markets work are the same for goods purchased by households, such as food, or goods purchased by firms, such as labor services. Thus, the word good, unlessqualified, has the broad meaning of any item or service of value. Goods may include labor services (such as student’s work behind the steam table at a cafeteria), financial accounts (such as savings doposits in banks), and everything else bought and sold in a market. Goods can also include items or services of value that are not traded in a market.

Prices. Just as good is an all-purpose word in economics, so also is price. A price  is the amount paid for one unit of a good, such as Rp 11.000 for one tempe. Although prices are usually expressed in terms of money, sometimes they are expressed in terms of other goods, such as two candy bars for one ice cream cone. A wage is a kind of price – the price for an hour of labor. A salary is also a price – the price for amonth’s or year’s worth of labor. A rent, too, is a typeof price – an amount for the use of a house for a month, say. For reasons that experts in linguistics may (or may not) understand, the English languagehas many different words for particular kinds of prices. fare, toll, tuition, and charge are all examples. We will use the all-purpose word price when exploring general principles, and we will often use it as a synonym for one of the other more-specific “price” words.

Price words sometimes do double duty, which can be confusing. Wage usually means an amount per hour but sometimes refers to a person’s income from work, which equals the wage per hour times the number of hours worked. By tuition, a university administrator may mean the tuition charge for the student or the total amount of revenue from tuition charges. The meaning of this words is useally clear from the context, but when there is possibility of confusion, we will make the meaning clear by referring to wage rate, hourly wage, wage income, and so forth, as appropriate.

Market.

 A market  is the entire enterprise for buying and selling a good at a particular location or at geographically dispersed locations. To understand the concept of a market, think first of a farm market in the central square of a small village. The farmers of the region bring their produce to the market square in the village. Households come to the market to shop, paying many to purchase vegetables, chickens, and so forth. As the village grows, the market becomes more dispersed. Grocery stores open to compete with the farmer’s market in the village square. Some farmers may travel the streets of the town in horse-drawn wagons, and later on in trucks, calling out as they got to attract residents from their houses to buy the produce in the wagon or truck. In a physical sens, the market comes to the household instead of the household traveling to the farmers’ market inthe village square. These different ways for farmers to sell goods to households may exist side by side-the market in the central square, the grocery store, and the truck taking goods down the street with the truck drivercalling out to attract residents to buy. This market is physically dispersed, but economically highly integrated, and so it makes sense to speak of one market.