Chapter 2 - The Role of Prices

Market economy

coordinated by prices, there is no one at the top to issue orders to control or coordinate activities throughout the economy.

Competition

is what limits how much anyone can charge and still make sales, so what is at issue is not anyones disposition.

gains and losses

are not isolated or independent events.

Lower prices

meant less greed, rather than changed circumstances that reduce the sellers ability to charge the same prices as before and still make sales.

Feudal Economy

the lord of the manor simply tells the people under him what to do and where he wanted resources put.

Modern Economy

has millions of products, it is too much to expect the leaders of any country to even know what all those products are.

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.

Free market economy system

is sometimes called a profit system, it is in reality a profit-and-loss system and the losses are equally important for the efficiency of the economy.

Price coordinated markets

enable people to signal to other people how much they want and how much they are willing to offer for it.

Rationally planned economy

sounds more plausible than an economy coordinated only by prices linking millions of separate decisions by individuals and organizations.