The Price system: signals, speculation and prediction

4 important questions on The Price system: signals, speculation and prediction

How do markets link the world?

When you buy a rose from Kenya, it undergoes a whole process of transactions. The worldwide market links people from one country to another.
- This process is voluntary and undirected, since everyone is acting on their own self interest

How do markets link to one another?

When the price of product A (like oil) rises, then this can have an effect on product B.
-Entrepreneurs can respond in a way that no one predicted.

What is the great economic problem?

The great economic problem is to arrange our scarce resources to satisfy as many of our wants as possible.


- Economics is about making choices.

Example: you want to use oil for more valuable things when its scarce
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What are prediction markets?

Prediction markets are a speculator market designed so that prices can be interpreted as probabilities and used to make predictions.


These market prices can make signals to predict who will win an election. If you can buy a share of a political candidate, you can predict who'll win

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