In our economies, money is used to represent the value of resources, products, and services. Price – the amount of money we exchange for something – is proportional to the ratio of two amounts that have been measured with the same units. It measures how much of the supply of something that people want to acquire (demand) as a fraction of the supply.
As price goes up, the probability is reduced that supply will go down; that is, people won’t buy as much. In my electrical analogy, price acts like an inductor, resisting changes in current. Slowing the drain on supply provides time for the supply to be increased (while the high price provides an incentive for the producer to do so), thus decreasing the price. Over time, in a perfect economy (“free market”) with unlimited raw resources (people as well as material), prices will tend to stabilize.
A perfect economy is one where everyone has unrestricted access to producers and accurate information about the quality and supply of what they’re buying. Also, the consumption of a product or service will affect the supply or demand of other products or services in predictable ways (if at all), which everyone will be aware of. Since perfect markets (and unlimited resources) do not exist in reality, societies must exercise some control over their economies to approximate ideal behavior; and in the best cases this is done through government (in the worst cases, government creates or contributes to the problems).
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