When I start to think about economics, capitalism, and the free market, I tend to get a bit overwhelmed. There are so many businesses and companies that operate individually for their own interests, that somehow end up being directly connected to each other in every daily deal and transaction. It’s hard to understand a way to monitor the market as a whole, a way to view how well or how badly the economy is doing; and that’s where the importance of prices appear. In Modern Principles of Economics, Tyler Cowen and Alex Tabarrok explain that “prices are incentives, prices are signals, [and] prices are predictions.” I often complain about the prices I encounter when grocery or clothing shopping (and no, this article won’t change that), but it is clear that prices are present for more than just my own annoyance or an owner’s greed. Prices help us to better understand where the economy is headed, and what we need to do to adapt to the evolving market. If prices rise in a product I buy often, like Trader Joe’s green tea, will I substitute that brand for a cheaper option, or go to another store entirely? If I choose to go to another store, will the store I shopped at previously understand that their customers are leaving, or will they go bankrupt in favor of their new competition? Prices will need to be evaluated and possibly changed, if this is the case. The free market is an incredibly tough and honestly quite dangerous atmosphere to navigate, as no business is promised success, and especially not for a lengthy amount of time. Cowen and Tabarrok reiterate that “in a successful economy there will be many unsuccessful firms,” which is a daunting, yet humbling reminder that nothing man-made can sustain itself forever.
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