(How) markets work
Good morning from Berlin,
What is the first thing that comes to your mind when you think of economics? Most people probably think of markets. Me too.
A market is nothing more than an encounter (mostly) between people, each following their interests. People are offering something that others may need. Markets bring people together.
You can offer apples at markets. Or good conversations. Or yourself (if you are looking for a life partner). At markets, the currency in which people pay is not always money, but often it is.
Economics examines these interactions. They look into how markets work. And when not. When markets give good results. And when not.
Supply and demand are at the core of every market analysis and the interaction of these two sides. This is what usually happens: When prices fall (meaning that supply becomes less expensive), demand increases. And, of course, the same is true vice versa: If prices rise, demand falls.
It's always amazing for me to see this interaction in reality. For example, with electricity and gas consumption in Germany last year.
Because prices had risen sharply in some cases, people in Germany significantly reduced their electricity and gas consumption last year. In 2022, 21 per cent less gas and around 12 per cent less electricity were used than in the previous year.
Markets are often viewed with scepticism. Especially when prices go up. But they are also that: Markets help to adapt to new situations. The rising price triggers reactions. People save energy or look for alternative sources of energy. In this sense, markets can even be used to thwart the strategies of dictators like Vladimir Putin.
The Strolling Economist is a reader-supported publication. To receive new posts and support my work, consider becoming a free or paid subscriber.