25 Theories to Get You Started Supply and Demand

Specialization

A labourer who hones skills with regards to one specific task will be more effective at the given task than someone who is unskilled. The market encourages people to develop special skill sets and trade their labour, or the products of their labour, with others for the things they need or want. Alternatively, people could directly satisfy their own needs. The key to specialization is that a specialist can perform their work generally better and more quickly than a non-specialist.

Example: A group of five specialists could all trade their respective goods and services to each other. These five specialists would be more wealthy (capable of enjoying more free time, and having better quality goods and services) than five equally capable people who all worked to provide for all their own needs on their own without specializing and trading with each other.

This is one of the key benefits of market and trade concepts, as this interdependent network of specialists are capable of dramatically more effective action than would otherwise be possible.

Markets

A place where goods and services are exchanged. One might imagine a bustling street full of vendors and customers or a stock exchange full of people buying and selling stocks. These are physical manifestations of what we call a market, but the definition is not limited to these examples.

Goods and services are exchanged at many levels. We can imagine markets at a local, national, and global scale. We can still use those first mental images, but we should be aware that markets can span continents and cross borders. They manifest themselves in many ways. The most general rules that define the way a market acts are via supply and demand (see above). Markets are also places where discussions can happen between people and organizations regarding appropriate quantities and prices for their exchange of goods.

Capital

A useful definition of capital is anything that can enhance the ability to do economically useful work. Economically useful essentially means anything that has value to human beings. There are many ways to produce value, so it makes sense that there are several types of capital that we can refer to.

Human Capital

Human beings who can perform useful work. This includes physical as well as mental work and specialized skills. Investment in improving human capital is generally through education and training. Accumulation of human capital could also mean hiring people who are useful for doing work.