Prices, Information, and Incentives

in economics •  7 days ago

Prices are a confusing subject for those who have not seriously explored economic theory and market mechanisms. Below, I have embedded a superb video from Learn Liberty on Youtube. It concisely and coherently explains how prices provide information to market actors, and encourage rational action by market actors to benefit others without the need for perfect information on the myriad subjects they would otherwise need to know.


What Do Prices "Know" That You Don't?

Many would argue that using price information to maximize profit is somehow inherently immoral, but this disregards the fact that prices are fundamentally a signal for what people want, and filling those needs benefits the wants of others. Profiteering means serving others. It is the reward for filling a need. As such, not only are prices an information network, but also an automatic incentive structure for serving others.

With this understanding of prices as information and incentive, what are the effects of price fixing, subsidies, bailouts, and trade restrictions? They can only be destructive. They result in misinformation, overproduction of undesired goods/services, and underproduction of needed goods/services. Government is by far the most common source of such widespread intervention. These problems are nonetheless often cited by socialists as proof of market failure, but hopefully this simple outline helps you understand the error in such arguments.


Steem Pope Sermon Bonus

Greetings, my children, and blessings of Blog be upon you. I write to you in order to present this post as an example of how to use Youtube video links in a Steemit post. Please note the following:

1 - Text introduction of the subject
2 - Video creator attribution
3 - Further discussion of the video content

If you only post a link to a Youtube video, you should decline payout. Only through adding original content should you accept a payout. Otherwise, you are spamming the Steemit blockchain and trying to get paid for someone else's work. Hello, sloth and greed! Beware these particular manifestations of the seven deadly sins.


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People can’t tell you what they think about pricing, because they don’t think about pricing. They feel it.