Basic Economics

What is Economics?

When the African countries of Ghana and Ivory Coast achieved independence in the 1960s, the presidents of neighboring nations made a bet about which nation would be more prosperous in the years to come. At the time, it seemed like a sucker’s bet: Ghana was already richer than Ivory Coast and also had many more natural resources. But the president of Ivory Coast was confident his nation would prosper because it had embraced free markets while Ghana was committed to a government-run economy. By 1982, there was no doubt about who had won the wager: the poorest 20% of Ivory Coast’s population had a higher real income than most of the people in Ghana.

In country after country, free markets have delivered greater economic growth and prosperity than any other sort of system. How do free markets deliver this consistent performance? In government-controlled economies, politicians or bureaucrats decide the use of resources and determine who gets the goods that are ultimately produced. Free markets use a more reliable method to answer these questions: prices.

Prices

Prices are like messengers that convey news. The news that they deliver concerns...