The driving service Uber is getting ready for New Year’s Eve, and using it’s knowledge of economics and prices to not only increase sales, but provide a better service to it’s customers.
You always hear people complaining about a the fact that a Free-Market has boom and bust cycles, and how that is a bad thing. The reality is that you really do want the market to boom and bust, whether you know it or not.
In today’s global economy, we can’t begin to count how many transactions between buyers and sellers happen each day. But who decides the individual costs of all of these goods and services? Why do those costs change over time? Why are some things so ridiculously expensive? In a free-market economy, prices are so much more than the amount of money we pay when we buy something.
Before we discuss the role of prices, I will set up a thinking experiment that we will use in subsequent discussions about the role of prices.