In these assessments that more informed decisions regarding

In
order to better tackle the question of “What is economics?” we must first
define two components that provide a foundation for its basis: valuation and
cost. Alchian (1969) defines valuation (value) as “obtained by weighing its an
events good and bad consequences against each other” (p. 404); in order to
determine the cost of an event, “The highest-valued forsaken option must still
be ascertained in order to determine the cost” (Alchian, 1969, p. 404). This
distinction is imperative in understanding economics.

Value
pinpoints an events’ desirable—or undesirable—traits, thereby promoting a
rank-based system that enables better decision-making; in doing so a decision-maker
can analyze the limitations (scarcity) of those resources and whether the
inputs available render the type of output he or she requires. Here is where
Alchian’s understanding of value delves into economics, as described by Lionel
Robbins in Sowell’s work: “Economics is the study of the use of scarce
resources with alternative uses” (2011, p. 18). It is this very scarcity which
impacts an events necessity—its value—because “there is simply not enough to go
around to satisfy all our desires to the fullest” (2011, p. 20). Thus, economic
consequences are determined via this cause and effect relationship between
scarcity and desire; because if an event exists in scarcity, then it surely
must harbor some value for its proliferation.  

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Opportunity
cost takes into consideration the repercussions of all the other options that
were not selected during decision-making. Alchian’s expression of cost further
aligns with Sowell’s understanding of causality—particularly in regard to “alternative
uses” (2011, p. 22)—in economics, because it focuses on the consequences due to
the incentives that may or may not have been foregone. Therefore, opportunity
cost helps establish efficiency and inefficiency in relation to an event—or objects—alternative
uses. Such discrepancies in cost lie at the heart of each economy and,
oftentimes, are the underlying reason for its success or failure. It is with
these assessments that more informed decisions regarding the distribution of
scarce resources can be implemented.

Additionally,
Alchian relates both opportunity cost and value to each other; this is done by
interpreting the results when value is decreased; Alchian (1969) expresses that
such an impact could translate into decreased costs, as all other options also
experience a similar decrease (p. 405). The understanding that “the costs are
lower because the values are lower, for that is what cost reflects” (Alchian,
1969, p. 405) relate to Sowell’s (2011) expression of “cause and effect,
showing what happens when you do specific things in specific ways” (p. 25).

            Furthermore, Sowell (2011) presents “different
institutional ways of making trade-offs that are inescapable in any economy” (p.

21). These methods lead to Alchian’s interpretations of cost and value—two long-term
examples of Sowell’s “trade-offs.” Alchian further explains that both
components are necessary to maintain the market-economy that presently exists.

Thus, these “trade-offs” form the foundation of Sowell’s economics.

            In summary, economics is a function of
valuation and cost and the differences between both. Their interactions provide
an understanding of scarcity and its implications on a society. This very
scarcity impacts the demands of a people and pays heed to the give and take
necessary for their proliferation.