How the profit system works in a free market economy: Part 2 of 2

Uploaded by LearnLiberty on Aug 15, 2011

What is the social function of profits and losses? As Prof. Daniel J. Smith of Troy University describes, they provide an incentive for people to follow the information provided by the price system. By pursing 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.

How the price system works in a free market economy: Part 1 of 2

Uploaded by LearnLiberty on Jun 22, 2011

Why are prices important? Prof. Daniel J. Smith of Troy University describes the role that prices play in generating, gathering, and transmitting information throughout the economy. Information about the supply and demand of different goods are dispersed among different buyers and sellers in an economy. Nobody has to know all this dispersed information; individuals only need to know the relative prices. Based on the simple information contained in a price, people adjust their behavior to account for conditions in supply and demand, even if they are unaware of that information.

polyslime:

Tremendously important material discussed herein. Every American ought listen to these thoughts on government and the economy voiced by Ron Paul. It has been a long, long time since this nation has seen a leader of his caliber. Please consider re-blogging this as the Establishment media seems to have no intention of bringing Ron Paul’s message to the people. If they hear they will likely agree and follow. There is still time to save this country. Let’s take back the power the people used to have before it was usurped by the federal government.

ninestripe:

Ron Paul today at the South Carolina Palmetto Freedom Forum, speaking more in depth on his platform of government nonintervention, free markets, states’ rights, and natural law.