Everything Has its Price (And That’s A Good Thing) | Learn Liberty

Everything Has its Price (And That’s A Good Thing) | Learn Liberty


Prof. Boudreaux: Everyday as a consumer you
interact with and perform minor miracles and yet you probably don’t recognize them as such.
If you think about them at all, you might consider them as nuisances or as obstacles.
But while they’re largely unappreciated, these small things actually make our modern lives
possible. What am I talking about? Prices. The prices we pay everyday for goods and services.
You might think they’re just the unfortunate cost of getting something you want but they’re
much more than that. When you learn about the vast amounts of information contained
within every price, each one becomes a marvel, a wonder that helps coordinate the billions
of choices of multitudes of people into a productive and dynamic economy. Let me explain.
Think about, say ketchup, the primary ingredient in that delicious red sauce is of course tomatoes.
Now suppose that there’s a terrible drought in California, this year’s tomato harvest
drops substantially. The demand is still there, people still want ketchup as much as they
did before for their hamburgers and fries but the supply is shriveled so farmers start
to charge higher prices for their tomatoes. That means ketchup makers have to pay more
for tomatoes so they charge grocery stores more for their product, and so in turn, grocery
stores charge higher prices for ketchup to consumers. The important point here is just
how customers respond. A few of them won’t care much about the higher price and they’ll
continue to buy as many bottles of ketchup as before but most consumers will care. They’ll
switch to mayonnaise or to mustard or just go without condiments altogether. And that’s
actually a good outcome given the drought. There simply aren’t as many tomatoes to go
around as before. People as a group need to eat fewer tomatoes. This uptake in the price
of ketchup leads some people; those who care the least about the particular condiment,
to use less of it and that means total consumption of tomatoes shrinks. From a bird’s eye view,
it might look as though this chain of events is consciously coordinated at the farmer,
manufacturer, grocery store, and customers are all working together according to some
plan or to some directive to adjust to the fact that the drought destroyed a lot of tomatoes.
But of course we know they aren’t. There’s no bureau of condiments ordering people to
hold the ketchup. Information about the need to cut back on tomato consumption was communicated
organically through prices. Or as the great economist Friedrich Hayek put it, the ketchup’s
price is, “A kind of machinery for registering change.”
Now multiply this chain of events by trillions, that’s the world economy. There are billions
of buyers and suppliers adjusting in real time, every hour of every day to shortages
and surpluses and they’re elaborately coordinating their behavior with each other and adjusting
to on the ground developments and they don’t even realize that they’re part of this great,
global chain of cooperation. All of this coordination and adjustment is thanks to prices. All those
different bits of information can be in that one little number. Think about that next time
you go to the grocery store. We understand the power of prices thanks to economists like
Friedrich Hayek. To learn more about Hayek’s essential ideas and how they help explain
our world, click here.

29 Comments on "Everything Has its Price (And That’s A Good Thing) | Learn Liberty"


  1. You're gonna get shot by leftists on your claim that "The people who care least will use less ketchup."

    They'll say no, the people who can afford ketchup least will use less ketchup, and what if it was medicine?

    You may want to prepare a response.

    Reply

  2. So we grow more tomatoes in the Midwest ūüėČ We have plenty of moisture in our current pattern. Can't help with avocados though sorry.

    Reply

  3. +Prometheus720 YouTube wont let me reply to your comment directly for some reason, but here is my attempt at a response:

    If there is a shortage of a particular medicine for whatever reason then, to be frank, there just isn't enough of the medicine to go around. Price controls will not/cannot solve the underlying reality. 

    Introducing price controls, whilst politically appealing in the short term, will have long term negative consequences. For example, price controls will reduce the incentive for pharmaceutical companies to produce more of the medicine to meet the demand, so you risk a perpetual short supply.

    On the hand, if pharmaceutical companies were incentivised by the higher-than-usual price to produce more of the medicine to meet the demand, then eventually supply will outweigh demand (at the higher price) , pharmaceutical companies will compete with one another, and the price will drop to more affordable levels. 

    Price isn't the problem, scarcity is, and price controls do nothing to solve it.

    Reply

  4. And when the government subsidies products like cotton and corn, we get an oversupply and more than we know what to do with. In the meantime, what's not being grown, because the government pays extra for farmers to grow certain crops, increases in price and harms the consumer. =/

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  5. I think we should intentionally prolong the drought, let's find out when the chips are down who would eat fries with mayo; we need to get these people off the streets and into the camps.

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  6. Very disappointing to find a simple yet comprehensive analysis on supply and demand's effect on prices to be an advertisement for heterodox neo-Hayek economics.

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  7. What does Learn Liberty think about perpetually advertising items as discounted to increase sales?

    Reply

  8. Time and time again, centralized bureaucracies have proven they cannot match the efficiency of prices. Their computing power is nothing compared to millions of individually operating brains. However, I fear the day that their computing power finally begins to rival that of the People's, because then one of the main arguments for (economic) freedom will be gone. Could this happen with increased technological development?

    Reply

  9. Now people should just apply this to human capital as well, i.e. the arguments for and against minimum wage. I think it would help people understand why menial/simple labor is afforded much lower payment, and why that makes sense, given that there is such a greater supply of people who have those skills.

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  10. Why can't the importance of price be taught better in this country.  I learned it in Economics class 20 years ago and many others did too.  How did we forget it?

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  11. O.O the prices of those tomatoes was so high. Really $3 a pound? I was at the grocery today and wanted some Naval Oranges, but they were $1.69 a pound and I was like no way. I will just buy them from someone selling them on the side of the road.

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  12. Speaking of ketchup, what would the price structure of food (and health outcomes) be like without government subsidies of corn that fuels high fructose corn syrup production?  HFCS is in almost everything!

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  13. That's all fine, but what about gas? Why is gas going up, when demand is down? Less traffic. We also have an abundance of reserves. I'd love to hear your reasoning.

    Reply

  14. This is such a SIMPLE subject, but yet it seems like the vast majority of people don't get it.  At first I thought it was education or something, but it seems like everyone was dropped on their head as kids.  Everyone.  What the hell, everyone?  Though, somehow Pearl from steven universe also gets it somehow. https://www.youtube.com/watch?v=C8I2j2TkWAA

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  15. capitalist propaganda. i rarely in fact maybe have never criticized a video from this page. maybe some of them are not my favorites or questionable. the problem is when the privileged society gets all the ketchup, and all the mustard, and all the mayonnaise and nobody can afford condiments at all because it costs 30$ a bottle. sounds extreme but we can clearly see concerns between supply, demand, and cost. they don't always add up. it becomes a problem for middle class and low income, apparently there is a shortage of everything these days.

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  16. bought a hamburger. wheat was farmed sent to a plant and processed into flour. yeast was cultured. the flour and yeast were sent to the same plant to make buns. cows were breed and butchered into hamburger made into patty's and frozen. pickles tomato and other plants were grown processed into condiments or simply packaged. all of the above was sent to a restaurant cooked and prepared into the hamburger. i paid 1$ now that's a miracle!

    Reply

  17. I think this is a demand pull inflation situation, it is not the farmer who starts the increase in price, instead, it is the factories that are in need of raw material and are willing to pay more, which drives up the price from the start, knowing that they can still profit from it. Its their understanding of the Ketchup users that drives up the price really.

    Reply

  18. Such a pity. Yes this video talks about consumer response to higher prices, but why oh why oh why wouldn't it cover the suppliers response? I would have shared, but it may confuse people into thinking that prices only moderate demand….

    Reply

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