Introduction to Microeconomics

Why is it that things like bread and water which have high use values are cheap while on the other hand luxury items like diamonds are very expensive? This paradox was not solved until it became understood that people choose only a marginal unit - this loaf or this diamond.

The disappearance of oil has been forecast every decade. Prices were overlooked. When the price is high it is more profitable to look for oil. Total reserves on the ground are higher than they were in 1890.

The peanut butter crunch was in 1980. Crop acreage and production was cut down by 45% by government price support, import quotas, and cartelizing of the industry. The price of peanuts more than tripled.

Business men must make sure they can cover their costs by incoming revenue. The production function will yield a certain quantity of a product. The firm considers marginal costs and average costs to weigh where along the demand curve production is.