Prices Are Not Arbitrary
9th June 2015
Don Boudreaux, a Real Economist, gets back to basics.
One of the greatest services that economics offers to humankind is the demonstration that prices set on markets are not arbitrary dictates. Instead, prices (1) reflect underlying realities and, in doing so, (2) inform producers and consumers about how best to coordinate their actions with each other and (3) give incentives to countless producers and consumers to adjust their actions to each other in coordinating ways. In short, prices reflect, inform, and incentivize. (I hate the word “incentivize,” but I now give up trying to buck the trend that has made its use widely acceptable.)