Economics is the study of how to allocate scarce resources in the most effective way, among alternative uses. Economics policy is formed of fiscal policy(tax and government spending) and monetary policy(interest rates).It begins with the concept of scarcity, which exists whenever your wants or desires exceed your resources or what is available to you. The problem is that the choices involve trade-offs. Then the cost of something is the opportunity cost- next best alternative foregone.
When people make a decision, they think and compare the value of something and the benefit which they will have if they buy it. If they think that the expected benefits are greater than the expected costs, they do it. If it is the opposite, they don't do it.
Most the decisions are made on the margin. This means, they think about whether one should do a little more or a little less of something. We make them all the time. We decide to do more of something when we can get more benefit from it (that's depend).
The interesting thing is with temperature. Most people do not heat their homes as high as 70 degrees. There we can see the opportunity cost. If there is more warmth, they would probably have to spent less money for something else.
The quantity that you desire to buy at each price defines your demand curve- more people want to buy a product when the price of this good is lower, and desire to buy less when is dear.
Each person's demand depends on their budget, ability to pay and willingness to have the good.
If the market is competitive, the price will settle at an equilibrium level where the supply curve and the demand curve intersect.
There are many reasons why market can fail to achieve efficiency e.g. the market can be competitive, there is not an equilibrium etc. The government can change things to make it better, but that does not means that he will do so.
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