Resource Allocation

Balancing Production and Consumption Before I continue discussing the allocation of resources in a free market, I would like to recap some of the points that I have made in the last few blog posts. I started by explaining the concept of consumer sovereignty, which means that the whole purpose of production and markets consists … Continue reading Resource Allocation

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Price Determination—Part Two

Now that we have a precise definition of the word “price,” we can discuss price determination (or priced discovery) of what we refer to as “market price.” We can understand the determination of an individual price by understanding the previously discussed definition of “price.” The individual price results simply from the agreement between buyer and … Continue reading Price Determination—Part Two

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Price Determination—Part One

The determination of prices represents another piece in the free market puzzle. As frequently as you hear people refer to prices, I find it surprising how many misconceptions people have about prices. How do you define “price.” What factors determine price? What role do prices have in resource allocation? In this article, I will address … Continue reading Price Determination—Part One

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Crazy Markets

In my post titled “Money Tree,” I explained in a general way how the addition of “non-market money[1]” distorts market prices, which in turn leads to a misallocation of resources. In this post, I will build a hypothetical model to show how that process works in more specific conditions. I will follow two different market … Continue reading Crazy Markets

Wage & Price Discovery

Socialists show reluctance to accept deferred payment or agree to absorb any losses. Even before they face those issues, how can they establish what portion of revenues they actually deserve? They cannot determine the price of the end product beforehand, and they cannot separate their real contribution to revenue. They have a real dilemma. Value … Continue reading Wage & Price Discovery

Nations Cannot Win or Lose Trade Wars

Nation-states have no resources of their own. They redistribute the resources of their citizens. Nation-states can neither win nor lose when they play with other people's resources. Tariffs and other weapons of trade wars disrupt normal trade; helping one group at the expense of another. Illusion of Trade Deficits The concept of trade wars begins … Continue reading Nations Cannot Win or Lose Trade Wars

A Pricing Model

No one can build a model to either determine or predict prices, despite the useful information that prices provide. Attempts to predict prices will always prove fruitless. Knowing prices in advance would prove useful to owners and managers in all businesses. Imagine the profitability a company that could accurately predict the future prices of its … Continue reading A Pricing Model

Relationship of Value to Price

Value and price have a very close and important relationship. Value exists entirely in the subjective realm, whereas price provides objective evidence of an economic transaction. The price results from action taken based on value. It does not, as many people believe, provide a measure of value. Value As I have laid out in previous … Continue reading Relationship of Value to Price