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by Foundation for Economic Education

1. How does an entrepreneur know what and when to produce? What kind of knowledge do prices communicate?

2. What does it mean that farmer Al needs information about what he should produce that is “too dispersed” and “too specific” to learn?

3. Why was farmer Moe able to rely solely on prices to determine what he should produce?

EoE: 5.1.A - What do Prices "Know" That You Don't?

According to Professor Michael Munger, prices (as in, the price of a carton of milk or a new car) are akin to magic. Prices “magically” convert countless pieces of dispersed, complex information into a single signal that conveys to sellers what they should do to best benefit society. By ignoring the price system, you’re really ignoring the needs of those whom you want to serve. This is the “magic” of the price system – it merges the needs of society with each seller’s desire for profit. This video is included as part of a 40-lesson course on the Economics of Entrepreneurship available now for teachers and students at no charge at FEE.org/Courses.

from What do Prices "Know" That You Don't? (2016)
Creator: Learn Liberty
Posted by Foundation for Economic Education
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