- Demonstrate how prices can guide individual behavior and continually change incentives of buyers and sellers in markets
- Illustrate Adam Smith’s idea of “the invisible hand” and F.A. Hayek’s idea of “spontaneous order.”
- Discuss exchange, voluntary cooperation, and market efficiency
- Show how prices emerge and how an equilibrium is the result of certain market forces
- Discuss shortages, surpluses, and the effects of price controls
- Tie broader connections between markets and society
Reading For This Module:
- Where do prices come from? by Russell Roberts
- Price Controls by Hugh Rockoff
Why do economists marvel at markets? What is the big deal? The laws of supply and demand seem pretty obvious…is there a deeper meaning of it all? In this module, you will learn more about how markets function and how they may be a bit more complex than at first pass. Markets and prices are kind of a big deal…we’ll see why.
Dr. Wentland Lecture: Personal Finance, Markets, Information and Incentives (Part 1) (21:59)
This video builds on the previous model of supply and demand, applying this model in a way that shows some of the deeper insights about markets, prices, information, and incentives.
Dr. Wentland Lecture: Personal Finance, Markets, Information and Incentives (Part 2) (25:24)
Dr. Wentland Lecture: Personal Finance, Markets, Information and Incentives (Part 3) (27:15)
What Do Prices “Know” That You Don’t? (video) (4:33)
If you want to do good for the world, Prof. Michael Munger has a piece of advice: Listen to the price system. He compares prices to a genie that knows everything in the world and tell you exactly what goods and services humanity needs most. (-video description)
Marginal University Supplemental Lectures:
A Deeper Look at the Demand Curve (~7:46)
This short lecture has some additional insights about how to think about the demand curve and different ways of interpreting it.
Market Equilibrium Review (~5:34)
This short lecture reviews many of the points brought up in Dr. Wentland’s lecture, coming at it from a slightly different angle. This will be useful to help you review for the quizzes and exam.
Is supply and demand a realistic model? (~8:00)
This short lecture discusses some of the evidence about these market “theories”. Is the real world evidence consistent with supply and demand?
Prices as Information – The Example of the Rose (~2:30)
This short lecture illustrates some of the points from Dr. Wentland’s lecture about prices providing information and coordinating buyers and sellers. This is a must see (one of Dr. Wentland’s favorite short videos).
More on Prices as Signals (~4:46)
This short lecture continues some points from the previous lecture, but with wider applications.
Markets Link the World (seriously) (~3:36)
This video shows how markets and prices encourage global cooperation.
When prices go up and down, we don’t usually give it much thought. As we respond to price changes, we are part of a complex market process that connects the world in profound ways. We are all part of a larger order, one that emerges out of our simple, everyday actions participating in markets. Who knew markets were so interesting?