The Science of Demand (14) - Unofficial Translation of Steven Cheung's 经济解释 - 科学说需求

Chapter III.  Scarcity and Competition

Using theory to explain behavior, behavior must be restrained by theory – this is a basic principle. The method in economic explanation is the same as any other empirical science: on one hand, we use certain generalized behavioral postulate, axiom or theorem to restrain behavior; on the other, we assert certain constraints or conditions to restrain behavior. This two-pronged approach allows us to infer human behavior under certain specified circumstances. With changes in conditions, human behavior will change accordingly. In order to be refutable by facts, this inference must be definite – if not definite, how can it be “falsified” or refuted? For those people who have mastered this kind of restraining theory, their prediction of behavior can be admirably precise.

Two postulates were mentioned in Chapter II: (i) any behavior of an individual is his personal choice, and this choice is predictable; (ii) under constraints, every individual will consistently maximize his self-interest. In addition, there are other postulates to restrain behavior. We will analyze these in Chapters IV and V. For the time being, we will switch to another topic – scarcity and competition – two indispensable concepts in economics.

Section 1.  The Definition of Goods

“Good” has a broad meaning. Not only can it be construed as a product or a commodity, but also service, friendship, reputation, air, cleanliness, tranquility, lover, love, etc. Any item that we possess, whether tangible or intangible, if better than nothing, is a kind of good – “have is better than have-not” is the definition of goods in economics. From an individual viewpoint, one’s own child, a fresh sea breeze, a bright moon among mountains, are all “have is better than have-not”; a pretty face, a trustworthy reputation, a charming voice, warm memories, the ability to think, etc., are all goods.

Goods can be divided into two broad categories: economic goods and free goods. The definition of goods is “have is better than have-not”, and out of “have is better than have-not”, a majority are “more is better than less”. “More is better than less” is the definition of economic goods. The “better” in this definition is an objective measure. Suppose we divide five taels of gold into two portions, one with 3 taels and the other 2 taels. When people are free to choose, and the 3-tael portion is chosen, gold is an economic good. With comparison, the one chosen is counted as better. Whether it is good or bad, or healthy, is irrelevant. Therefore, “better” here has neither the content of subjective nor value judgment.

Economic goods, being “more is better than less”, have innumerable examples in the real world. Gold, silver, wine, abalone, ginseng, shark’s fins, fish’s maw, fruits, vegetables, clothes, food, housing, transportation, travelling, leisure, family fun, etc., are all economic goods, since having more of them is better than less.

Out of all the goods, a minority belong to “have is better than have-not” but not “more is better than less”. Given the supply of these goods exceeds demand, no additional value is generated even if there are more of the goods, hence “more is better than less” does not hold. Not many of these goods exist, the most cited example being air. In unpolluted areas, air is inexhaustible. No one would strive for more air. Though essential, air can only be said as “have is better than have-not”, but not “more is better than less”. Air therefore belongs to a free good instead of an economic good. That said, in a highly polluted area, fresh air is much needed. Under such circumstances, fresh air is no longer a free good but an economic good.