The Price System, Part 1: Information

Daniel J. Smith

Daniel J. Smith is an Assistant Professor of Economics at the Manuel H. Johnson Center for Political Economy at Troy University and an Adjunct Scholar at the Mackinac Center for Public Policy.

Why are prices important? Prof. Daniel J. Smith of Troy University describes the role that prices play in generating, gathering, and transmitting information throughout the economy. Information about the supply and demand of different goods are dispersed among different buyers and sellers in an economy. Nobody has to know all this dispersed information; individuals only need to know the relative prices. Based on the simple information contained in a price, people adjust their behavior to account for conditions in supply and demand, even if they are unaware of that information.