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Suppose a drought in Brazil severely reduces the supply of coffee. Coffee prices will rise. Even if consumers do not know about the drought, the higher prices will provide them with all the
Is the concept of the invisible hand really valid? Next time you sit down to have a nice dinner, think about all the people who help make it possible. It is unlikely that any of them, from the farmer to the truck driver to the grocer, was motivated by a concern that you have an enjoyable meal. Market prices, however, bring their interest into harmony with yours. Farmers who raise the best beef or turkeys receive higher prices; truck drivers and grocers earn more money if their products are delivered fresh and in good condition; and so on.
- An amazing degree of cooperation and order is created by market exchanges
- information they need to know
it’s time to cut back on coffee consumption. Market prices register information derived from the choices of millions of consumers, producers, and resource suppliers, and provide them with everything they need to
know to make wise decisions.
Market prices provide producers with up-to-date information about which goods consumers most intensely desire, and with important information about the abundance of the resources used in the production process. The cost of production, driven by the opportunity cost of resources, tells the business decision maker the relative importance others place on the alternative uses of those resources. A boom in the housing market might cause lumber prices to rise. In turn, furniture makers seeing these higher lumber prices will utilize substitute raw materials such as metal and plastic in their production processes. Because of market prices, furniture makers will conserve on their use of lumber, just as if they had known that lumber was now more urgently needed for constructing new housing.