What is “value” and how do you create it?

In simplest economics,

“economic value is measured by the most someone is willing to give up in other goods and services in order to obtain a good, service, or state of the world”

“willingness to pay: The classic method that economists use to estimate how much people value an economic good is to look at the price they pay for it.”

This definition means a couple things:

  • if someone won’t pay you for what you made, then they don’t value it
  • if someone does pay for the thing you made, that’s a lower bound on how much they value it
    • i.e., if someone pays $5 for an icecream but is willing to pay $7 they value it at $2 more, but the seller wouldn’t know this unless they sell it for more

companies are groups of people creating value that are recognized by the government and banks

companies grow by creating value for people longterm

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funfact: based on the definition of value above, the U.S government is the most valuable business in the world. U.S gov generated $4.05 trillion in revenue in 2021 That’s >3x the largest company, Walmart, which generated $571.96B in in 2021.

Anyway, for companies to create more value in the world, they must either

  • provide more value to each customer they have
    • e.g., sell an Operating system, and provide regular updates to make the customers life better
  • provide the same value to many more customers
    • e.g., You sell an Operating system to 10 people, then go sell it to 100 more
  • or a combination of both
    • e.g., Push out your Operating system to more people while pushing updates

something that seems to determine if something is valuable, is if it is hard

Not all hard things are valuable (e.g., balancing hot coals on your eyeballs)

But it seems almost all valuable things are hard (e.g., startups, exercise, learning skills)

why?

if something was easy & valuable lots of people would do it

and this would drive up the supply of that thing

and hence the amount of value you can create by doing it is likely less

Like, if building an electric car takes a minute and costs almost nothing, there’d be a lot more electric cars, and the value of the electric car would drop