The role of prices

In a market economy, there is no one at the top of to issue orders to control or coordinate activities throughout the economy.

Prices play a crucial role in determining how much of each resource gets used where and how the resulting products get transferred to millions of people.

Some people see prices as simply obstacles to their getting the things they want, but in fact it is not the prices that cause the scarcity, which could exist under whatever other kind of economic system or social arrangement might be used instead of prices.

Prices are not just ways of transferring money; their primary role is to provide incentives to affect behavior in the use of resources and their resulting products.

Although a free market economic system is sometimes called a profit system, it is in reality a profit-and-loss system--- because losses tell producer what to stop doing.


Price-coordinated markets enable people to signal to other people how much they want and how much they are willing to offer for it, while other people signal what they are willing to supply in exchange for what compensation.

The fundamental problem with central planning is that planner don't have enough information to control all the economic affairs and they are not quick enough to make the adjustment.

Price are not arbitrary. Competition matters.
The price which one producer is willing to pay for any given ingredient becomes the price that other producers are forced to pay for that same ingredient.

The resources tend to flow to their most valued uses when there is price competition in the marketplace.


Prices coordinate the use of resources, so that only that amount is used for the one thing which is equal in value to what it is worth to others in other uses.

Seldom is there a fixed quantity demanded or quantity supplied.
The quantity supplied varies directly with the price, just as the quantity demanded varies inversely with the price.
The competition of numerous buyers and sellers results in prices that leave each individual buyer and seller with very little leeway.

Competition is the key to the operation of a price-coordinated economy.
The most fundamental reason why there is no such thing as an objective or "real" value is that there would be no rational basis for economic transactions if there were. VALUE IS SUBJECTIVE!!!