Economic Indicators: Price Mechanism

When it comes to prices people confuse prices as a barrier for people getting what they want, rather what prices are, are economic indicators, they give signals to the market so that we are able to allocate scarce resources to the market with economic efficiency. The price mechanism is the single most important driver behind the economy, it is what enables us to trade in the global economy and are able to translate the scarce resources into commodity prices for the market. This is all driven by what we call supply and demand. This is what the market price definition is, prices set by consumers demand, what people are willing to pay for commodities.

What we must understand about the price system when speaking about economic calculation, we must understand the importance of profit & loss, so what is profit and loss, why is this important? In this video I set out to explain the valuable information profit & loss gives us to be able to allocate scarce resources efficiently, which also gives the market the information for market pricing; what consumers want and what they don't want; what investors should invest more in and what not to invest in; as well as where to place scarce resources and where not to.

Without the price mechanism (price system) there is no economic efficiency for prices thus the inefficiency of Socialism when faced with the economic calculation problem. In order to promote economic growth with economic development we need prices to better improve our living standards through increased productivity and only prices can allow us to achieve that whilst using the fewest scarce resources as possible. Poor economic policy through price fixing via governmental control and ownership is what causes problems.