It seems like everything is always going up in price. Is that because of corporate monopolies or something? Do costs of living get higher as a society becomes more industrialized/advanced?
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Let’s start with inflation.
Suppose you have 10 apples. Now suppose 20 people want those apples. Only 10 of those people can get those apples, right?
So how do we decide who gets the apples?
One way is that we can allow the 20 people to bid on those apples: to offer you money for them. And the highest 10 bidders win the apples. But that means apples are going to be a lot more expensive than, say, if you had 20 apples and asked people to bid on them, because there isn’t a shortage in apples.
Supply—that is, the amount of apples you have—and demand—that is, the people who want them—alter the price of things. If we don’t have enough of them, people wind up bidding more for that thing—and the prices goes up. If we have more, then people don’t have to bid as much—and the price goes down.
Now suppliers—that is, the people who grow apples—it costs them so much money to grow an apple. Notice when people bid on the apples, *they don’t bid on how much it cost to grow an apple.* Only on how important the apple is to them.
So you can get into a situation where, because there are too many apples, you can’t sell apples for as much as it cost you to grow apples. At which point, most people say “well, then, I don’t want to grow apples anymore.”
Or you can get into a situation where there are so few apples, they become incredibly expensive—and incredibly profitable. And other people may come along and say “gosh, if I were to plant some apple trees, maybe I can make a whole bunch of money when the trees mature!”
So price—which has nothing to do with the cost of growing apples—serves as a sort of signal: do we have too many apples in the world? Or do we have too few apples in the world?
Now let me throw one more thing in: suppose the government tells you that you can’t grow apples for some reason. (Suppose people think apple trees are ugly, for example, so they don’t want you to plant them.) Now we have a situation where, despite the fact that we may have too few apples, we can’t grow anymore. The people who are allowed by the government to grow apples—they can become rich: remember, the price of an apple has nothing to do with the cost of growing an apple, other than the fact that if you don’t get paid more than it costs to grow, you’ll probably stop growing apples.
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Now extend this to everything in modern society.
Housing prices are going up for a lot of complicated reasons. But at its core, houses are like the apples in my example: we have too few of them, and we can’t make more at a price that is affordable to people yet allows builders to make a profit.
We see monopolies form because the government prevents others from competing—like the example above about how the government doesn’t want you to plant apple trees because people think they’re ugly. And the monopolies become rich because the cost to grow an apple has nothing to do with what people are willing to pay for an apple.
And we see variations of this: the government making it more expensive to plant and grow apples, say, because they decide that you have to file an apple report every week on how your trees are doing—and that makes you have to hire someone to fill out the reports, causing your prices to go up. Growing an apple costs the same—but dealing with government reports makes it more expensive for you to sell your apples. (And remember: the price people pay is not what it costs you to sell an apple—which means you’re less likely to want to grow apples if you can’t make money at it.)
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It’s a long ELI5 but the point I’m trying to get across is the idea that for some industries, like housing, we have shortages which drive prices up. For some areas, like health care, administrative costs have been driving up prices, especially in the United States. And in other areas we see monopolies form either because of natural barriers to entry, or (more often) because of government restrictions which make it hard for competitors to enter a market.
But at the bottom of the stack, it comes down to 20 guys wanting 10 apples, and bidding on who gets to buy them: if we could somehow grow another 10 apples we may be able to feed everyone, and not just a few.
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