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How to price your work. A Simple Technique.

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Prices Allocate Scarce Resources Efficiently

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Prices Allocate Scarce Resources Efficiently

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Market-based economies allocate scarce resources to the most useful products

Ex. Dairy companies buy milk for products in highest demand, like ice cream.

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Prices Allow Markets to Respond to Changing Conditions

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Prices Allow Markets to Respond to Changing Conditions

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Prices allow markets to adjust quickly to things they cannot control, such as war and natural disasters.
Example: Hurricanes can cause shutdowns of crude oil production, in response, the prices of goods made with oil increase.

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Both consumers and producers use this information to help make decisions.
Example: The higher price of real estate signals that that particular good is in short supply.
Example 2: The lower price of rubber flip-flops sends the opposite signal.

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Prices Create Incentives to Work and Produce

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Prices Create Incentives to Work and Produce

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Prices = incentive because they lead to profit

Higher prices = more production

Lower prices = less production

Ex. Higher house prices lead to more people wanting to make houses due to getting paid more.