Free To Choose

Understanding how prices work is critical to intelligent decision-making in the marketplace. Unfortunately this is hard to achieve: “To the despair of every economist, it seems almost impossible for most people other than trained economists to comprehend how a price system works” (220).

The benefit of an open pricing system is that it allows resources to flow to where they’re most wanted. If people suddenly want more of a product, they will flock to buy it and its price will rise; this will inspire producers to make more of the product or competing products, which brings the price back down. Hard-to-make items will tend to cost more and will generate sales only if they are worth more to buyers than less expensive varieties.

When a government decides that something costs too much for the poor to afford, it may place restrictions on its price. Now cheaper, the product draws more buyers but fewer producers, who can no longer make money on the product. Lines of buyers must wait to obtain the product. Left to itself, the prices of expensive items tend to decline as producers find cheaper ways to produce them.