Profits: Not Just a Motive

Most people think that prices are arbitrarily set by sellers, but in an open economy they're actually a constant negotiation with buyers, who are free to choose to buy other products, or buy from competitors, or not buy anything at all.

More importantly, prices aren't just what you pay for goods & services. They're important information wrapped in incentives that signal both producers and consumers to modify their behavior as conditions change.

When prices go up for a particular thing, the prospect of higher profits encourage entrepreneurs to make more of it, while the elevated cost puts pressure on customers to consume a bit less. Likewise, when prices drop, it signals a glut of supply relative to demand.

Prices are the way we coordinate an immense amount of incredibly decentralized information across an entire economy, and can't be replaced by any kind of central planning. ... https://www.youtube.com/watch?v=H6CaK7QBg6Y