The fundamental question which economic theory explains is: why it is that goods have low prices and why some goods are expensive while others are cheaper. The broad answer is that goods have prices because, on the one hand, they are useful and, on the other hand, they are scarce in relation to the amount which people will like to have. People will not be prepared to pay a price for the goods unless they are useful to them. Similarly, goods may be very useful, but if they are freely available in an unlimited amount, they cannot command a price. For example, air is very useful to us, but it is not scarce and hence it cannot command a price. Goods like air, which are gifts of nature, are known as ‘free goods’ and they do not have a price. By contrast, economic goods are scarce and command a price. Thus, economic goods have a price because they are useful as well as scarce in availability. It is only because economic goods are useful that they are demanded by buyers, and only because t
