Chapter 5.
To Buy or Not To Buy

Graham: What is a cynic?
Darlington: A man who knows the price of everything. . . and the value of nothing.

Oscar Wilde (1854-1900),
Lady Windermere's Fan, Act III


The economic words for buyer and seller are, as you know, "demander" and "supplier." The two flow together in markets. To understand markets you need to understand each of these-supply and demand-more deeply.

Begin with demand. Why do people buy the amounts they do? In particular, why are they willing to pay only a little for an essential item like water and so very much for an unnecessary item like diamonds? One answer comes from the economist's "Rule of Rational Life."