14 laws · Economics & market laws
Laws of economics explained for business owners
The economic forces behind every price tag, cost curve, and competitor move — explained without the textbook graphs, and translated into decisions you can make this week.
Law of Supply and Demand
Prices rise when demand exceeds supply and fall when supply exceeds demand, settling where the two meet.
Law of Diminishing Marginal Utility
Each additional unit of something gives less extra satisfaction than the one before.
Law of Comparative Advantage
Everyone gains when each party specialises in what it gives up least to produce, and trades for the rest — even if one party is better at everything.
Gresham's Law
Bad money drives out good: when two forms of money have the same official value, people hoard the more valuable one and spend the other.
Jevons Paradox
Making a resource more efficient to use can increase total consumption of it, because it becomes cheaper and more useful.
Say's Law
Production creates the income that funds demand — summarised (and debated) as ‘supply creates its own demand’.
Engel's Law
As household income rises, the share spent on food falls — even though the absolute amount spent on food may rise.
Law of One Price
In an efficient market, identical goods should sell for the same price everywhere, after accounting for transport and taxes.
Veblen Effect (Veblen Goods)
For some luxury goods, demand rises as price rises, because a high price signals status.
Tragedy of the Commons
When a shared resource is open to everyone, individuals acting in their own interest tend to overuse and ruin it.
Wright's Law (Experience Curve)
Every time cumulative production doubles, the cost per unit falls by a roughly constant percentage.
Law of Diminishing Returns
Adding more of one input while others stay fixed eventually produces smaller and smaller increases in output.
Baumol's Cost Disease
Services with little productivity growth, like education and healthcare, get steadily pricier because their wages must keep pace with more productive sectors.
Hotelling's Law
Competitors tend to make their products very similar and cluster together, because each one moves toward the middle of the market.