Giving Thanks for Price Theory, 2025 Edition
Deep Dives
Explore related topics with these Wikipedia articles, rewritten for enjoyable reading:
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Uncertainty, Evolution, and Economic Theory
14 min read
Linked in the article (5 min read)
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Pareto efficiency
10 min read
The article devotes significant discussion to Pareto efficiency as both a welfare criterion and a tool for positive economics, including the UCLA approach that uses it to understand observed allocations rather than prescribe what 'should' be. Readers would benefit from deeper understanding of this foundational economic concept.
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Steven N. S. Cheung
17 min read
The article cites Cheung's presidential address to the Western Economic Association and his buffet example as illustrating key price theory insights. Cheung was a major figure in transaction cost economics and the UCLA price theory tradition the article celebrates.
Happy Thanksgiving!
Each year that we write this newsletter, there is more to be grateful for. We started this, hoping a few hundred people would sign up. Five years in, we’re at 23,000 subscribers, almost 10,000 of whom weren’t signed up for last year’s Thanksgiving newsletter.
We’re really grateful for the knowledge we’ve gathered along the way. Each week we learn more in the process of writing and getting feedback from readers like you. It’s an absolute gift. In keeping with tradition, we’re resharing our original Thanksgiving post from 2020, with its lasting lessons for understanding the world.
So, as you gather around your Thanksgiving table (factoring in all relevant opportunity costs, of course), we hope these ideas spark some interesting conversations.
P.S. (Can you write P.S. for an intro?) If you want more price theory content, Brian is writing a book for Stripe Press on price theory, which, like Economic Forces, teaches the power of rigorous economic reasoning. It will be all new material, so make sure to follow along for updates.
Much of the impetus for writing Economic Forces is our appreciation for price theory and a desire to spread that appreciation against the prevailing winds within the profession.
With this being Thanksgiving, we thought that it was only appropriate to spend this week’s Economic Forces giving thanks for some important lessons that price theory taught us. Some of these lessons stand alone and some might prove to be fodder for future newsletters, but all are worthy of sharing on this day of thanks.
Thanks price theory for teaching us that costs are about more than money
In a world of finite resources, not everyone can have everything that they want all of the time. Every decision requires evaluating a trade-off. As a result, one always needs to think about the opportunity cost. A lot of these trade-offs and opportunity costs are easy to understand. If I want to buy a new television that has a price of $300, I face the trade-off between having a TV and having $300. Or, more accurately, I face a trade-off between the television and what I could otherwise purchase with the $300.
However, this insight goes much deeper than thinking in terms of monetary costs. Opportunity costs aren’t just monetary. Sometimes they involve time. For example, suppose that I decide to buy a house. I am choosing between two different
...This excerpt is provided for preview purposes. Full article content is available on the original publication.