2 thoughts on “Hayek in a Different Form – Why Prices (and Profits) Matter

  1. This video muddles the point it is trying to make about the role of profits. It confuses prices and profits. The narrator states, “A product that commends a higher price means that there is more demand for the product than there is supply available…. For producers, high prices encourage production.”

    It is the opportunity for higher profits, not simply high prices, that encrouages production. Otherwise, producers would all be manufacturing airplanes and constructing skyscrapers, and wouldn’t be able to determine whether to build cruise ships or cargo ships. It is return on investment – profit margins – that determine how producers invest, not prices.

    1. A sound correction that makes the video’s point clearer. Thanks. I still find the video pedagogically useful, especially the last point about how government action distorts the price signal.

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