In this video, we discuss how markets link people and places all over the world. We’ll take a look at production and consumption markets and, importantly, the role

In this video, we discuss how markets link people and places all over the world. We’ll take a look at production and consumption markets and, importantly, the role that prices play in it all. Following up on our example of a rose, we take a look at other global products such as the Apple iPhone. Where is the iPhone made? It’s produced by thousands of people all over the world, working in cooperation in order to make one product that many of us enjoy. Join us as we observe the invisible hand in action.

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Today, we begin a series of talks on the price system. Not one market in isolation with demand and supply, but how markets link people and places all over the world. A key part of this whole story is going to be the role of prices. Something that you'll be hearing quite often is that a price, it's a signal wrapped up in an incentive. So we'll be talking about signals, about incentives, about speculation and prediction, and much else beside.

 

We're going to begin with markets linking the world. We've already talked about the rose as a global product but it's not just roses of course. Take a look at the products around you. An iPhone designed in California has parts from the United States, from Kentucky, from Texas, from New York. The rare earths are from inner Mongolia. Some of the chips are produced in Korea and Taiwan. The gyroscope comes from France and from Italy. It's assembled in China. So where is the iPhone made? It's really made here in the world. It's a world phone like many of the products we consume today, it's produced by thousands, hundreds of thousands of people all brought together, all cooperating in order to produce a product.

 

Now take a look at this picture. It shows something utterly familiar but I want you to see it deeper now with new eyes. We have here grapes from Chile, pineapples from Brazil, Kiwis from New Zealand, all of these within a hand's breath of one another. Think of all the farmers, all the truckers, all the airline pilots who have worked together to bring this literal cornucopia to you. And what do we call this place? Think of the name now with a new meaning. We call it a supermarket.

 

When we read the news or see it on television, we're often told about conflict, but there's another story, a deeper story, a story which is all around us everyday, although sometimes it's hard to see and that is a massive, a tremendous amount of worldwide cooperation. Hundreds of thousands of people from Kido to Chicago cooperated to bring the rose to our handsome young man and they did so voluntarily, on the basis of self interest, without central command or central direction. This is the invisible hand in action. Self interest coordinated towards the social good through the use of markets.

 

Even in economics, we often focus on competition but the deeper story is cooperation, worldwide cooperation. What markets do is coordinate the self interest of many different people who ultimately have different goals, different preferences, different insights, different knowledge, different circumstances. What markets do, they coordinate the different interests and knowledge of these different people to produce extensive cooperation and mutual gain. That's one of the deep lessons of economics. Thanks.

 

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user's picture

1. Price of paper has increased due to increase in demand of cookbooks, supply of paper has not changed. So with more paper going towards printing of cookbooks, there is less paper left for other things. With less paper, there will be decrease in demand of pencils and so price of pencil falls.

2. In general when price of paper increases, demand decreases. With decrease in demand of paper, demand of pencil also decreases and so its price will also decrease.

3. In general, people have fixed budget for things they do. Paper and pencil are complementary. If a person has 10 dollars to buy paper and pencil to write and if price of paper increases, he/she will have less money to buy pencil. He will buy less pencil and with decrease in demand, price of pencil will fall.

user's picture

Yes I noticed that too.

user's picture

I agree.
In order for students to learn it is essential to have answers to problem sets.
This is my biggest bug with Marginal Revolution, which is otherwise excellent.

The answer to the last question requires an understanding of later videos on cross elasticity and complementary and substitute products and prices.
I'm guessing the question was put here in order to lead onto the next subject and would make students scratch their head and think. unfortunately without the answers the result is frustration rather than learning.

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