Economic theory

Economic theory is a way of thinking about how people buy and sell things. It's like a set of rules that helps people understand why certain things happen in the economy.

Think about playing with toys. You might have a toy that you don't really like anymore and want to trade it for a different toy that you really want. This is kind of like what happens in the economy. People have things they want to get rid of and things they want to get, and they make trades with other people to get what they want.

Economic theory tries to understand how people decide which trades to make, and how much they're willing to pay for things. It also tries to explain why some things are more valuable than others, and how that changes over time.

For example, let's say you have a toy car and your friend has a toy truck. You really want the truck, but your friend doesn't really want the car. So you might offer your friend some other toys to sweeten the deal, like a ball or a doll. This is called bargaining, and it's a big part of how people make trades in the economy.

Economic theory also looks at things like supply and demand. This means that if a lot of people want something, it will be more expensive. But if not many people want it, it will be cheaper. So if you have something that a lot of people want, you can charge more for it. But if nobody wants it, you might have to sell it for less than you paid for it.

Overall, economic theory is kind of like a big puzzle that tries to explain how the economy works. It can help people make better decisions about what to buy and sell, and can even help make the economy better for everyone.