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EoE: 5.3.A - The Price System Pt. 2

What is the social function of profits and losses? As Professor Daniel J. Smith of Troy University describes, they provide an incentive for people to follow the information provided by the price system. By pursuing profits and avoiding losses, producers and consumers use scarce resources in effective ways. In anticipation of being rewarded with profit, people and businesses are encouraged to undertake activity that will create valuable outputs. At the same time, the potential for losses encourages them to avoid excessive risks and wasteful activity. Policies that reduce profits, such as taxation, or reduce losses, such as bailouts, disrupt this function of prices and lead to inefficient uses of resources. 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

from The Price System, Part 2 (2016)
Creator: Learn Liberty
Posted by Foundation for Economic Education