great thinkers, great ideas

200 Economic Theory: An Introduction

of the people. The premise which is the basis for such a theory
is that the government can better provide for the material needs
of the people. Communism purports to eliminate some of the
problems of unemployment, economic security, and economic
stability that are inherent in a free-enterprise system.
The concept of man as a cooperative being is important to
socialism. The idea that man is competitive by nature is the basis
for capitalism. Capitalism has as a major premise the value of
economic freedom, while socialism extols economic security as
a more important value. Socialism looks to the state to provide
full employment, while capitalism seeks economic growth as a
means to full employment. All economic theories and their
resulting systems are constructed with an eye to the improve­
ment of man in the material world. The question, of course, is
which system best achieves the desired results, and even more
important which results are most worthy of being desired.
In addition to the theories about the nature of man, theories as
to which economic values are superior to others, and what
system is best for the individual, the group, or both, there are five
great economic laws which have a bearing on what factors must
be taken into account in our analysis of economic philosophy.
The five laws are:

1. The law o f demand—This law states that if the price of a
   product is reduced, more will be bought; if the price of a
   product is raised, less will be bought. For example, people
   will buy more at a sale than when the same item is offered at
   the regular price.


2. The law o f supply—This asserts that producers will offer
   more for sale at higher prices than at lower prices. For
   example, more fans are produced and offered for sale in the
   summer than in the winter.


3. The law of diminishing marginal utility—This states that,
   given any consumption situation, as one consumes more of a
   good, the amount of usefulness or satisfaction derived from
   each consecutive unit used will rise, peak, and then level off
   or decline. For example, there is just so much of a food we can
   eat, even though we start out with a great hunger.


4. The law o f diminishing returns—This says that, given any
   production situation, the more resources (input) that are used,