Basic Tenets Part 7 — The value of a good or service is subjective

As you know, I’m writing brief blog posts on these 8 guideposts for economic thinking.

1. The use of scarce resources is costly; trade-offs must always be made.
2. Individuals choose purposefully —
 they try to get the most from their limited resources.
3. Incentives matter — choice is influenced in a predictable way by changes in incentives.
4. Individuals make decisions at the margin.
5. Although information can help us make better choices, its acquisition is costly.
6. Beware of secondary effects: economic actions often generate indirect as well as direct effects.
7. The value of a good or service is subjective.
8. The test of a theory is its ability to predict.

Source: Economics: Private and Public Choice, | Gwartney, Stroup, Sobel, Macpherson

The other day, I told a co-worker that I don’t like Girl Scout Cookies. I told her that, aside from not really liking their cookies in general, I buy Boy Scout Popcorn. I tweeted it too, and one of my friends told me that I am nuts.

I responded with:

“Fair point, but the value of a good or service is subjective. And to be honest, I prefer popcorn to girl scout cookies.”

You may think that new band is worth seeing for $100. I may think that buying their and 9 other CD’s is a better use of money. People have different preferences, which is why most grocery stores have like 20 types of peanut butter.

This is why markets are so beneficial. Rather than start aggregating things and limiting choices, people can choose what they want, how much they are willing to pay, and where to shop. This explains why eBay and Amazon are so popular.

 

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