Principles of Economics: Microeconomics - Information and Incentives

What does an increase in the price of oil tell us? What does it signal? And how do we adjust to that signal? The price of oil gives users of oil an incentive to respond — by using less oil or substituting lower-cost alternatives for oil. The key here is that we let people decide how to most effectively allocate the use of goods and resources. To solve the great economic problem, we need to solve information and incentive problems. In this video, we take a look at how Nobel Prize-winner Friedrich Hayek described the price system and its approach to solving the information problem. We’ll also continue with our example of oil to show how the price is equal to the marginal value of oil or the social opportunity cost. Microeconomics Course: https://mru.io/vxm Next video: https://mru.io/6bn Help us caption & translate this video! http://amara.org/v/GGJS/ 00:00 Solving the great economic problem 02:52 Example – Increase in cost to supply oil 04:58 How the market solves the information problem 06:58 How the market solves the incentives problem 07:42 Price gouging and price controls 08:56 Takeaways