If you answered "yes" to any of these questions, you are assuming that there should be a relationship between prices and value. Economists suggest there is very little relationship between prices and value.

To illustrate this concept, think about the following:

Which has more value?

By any reasonable definition, air has more value than a sports car.

Yet the sports car costs more. It has a higher price. Why?

Prices do NOT reflect intrinsic value. Prices reflect conditions of scarcity.

To help explain how prices are determined, economists use the concepts of supply and demand.

Supply and demand analysis can be used to help explain most economic phenomena.

E-mail Dr. Buck with your questions or comments.

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