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♪ [music] ♪

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- [Alex] Today, we begin a series
of talks on the price system.

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Not one market in isolation
with demand and supply,

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but how markets link people
and places all over the world.

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A key part of this whole story
is going to be the role of prices.

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Something that you'll be hearing
quite often is that a price,

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it's a signal wrapped up
in an incentive.

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So we'll be talking about signals,
about incentives,

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about speculation and prediction,
and much else beside.

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We're going to begin
with markets link in the world.

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We've already talked
about the rose as a global product

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but it's not just roses of course.

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Take a look
at the product around you.

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An iPhone designed in California
has parts from the United States,

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from Kentucky, from Texas,
from New York.

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The rare earths
are from inner Mongolia.

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Some of the chips are produced
in Korea and Taiwan.

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The gyroscope comes from France
and from Italy.

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It's assembled in China.
So where is the iPhone made?

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It's really made here in the world.

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It's a world phone like many
of the products we consume today,

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it's produced by thousands,
hundreds of thousands

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of people all brought together,
all cooperating

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in order to produce a product.

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Now take a look at this picture.

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It shows something utterly familiar
but I want you to see it

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deeper now with new eyes.

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We have here grapes from Chile,
pineapples from Brazil,

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Kiwis from New Zealand,
all of these within a hand's breath

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to one another.

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Think of all the farmers,
all the truckers,

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all the airline pilots
who have worked together

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to bring this literal
cornucopia to you.

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And what do we call this place?

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Think of the name now
with a new meaning.

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We call it a supermarket.

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When you read the news
or see it on television,

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we're often told about conflict,
but there's another story,

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a deeper story, a story
which is all around us everyday,

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although sometimes it's hard to see
and that is a massive,

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a tremendous amount
of worldwide cooperation.

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Hundreds of thousands of people
from Kido to Chicago cooperated

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to bring the rose
to our handsome young man

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and they did so voluntarily,
on the basis of self interest,

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without central command
or central direction.

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This is invisible hand in action.

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Self interest coordinated
towards the social good

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through the use of markets.

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Even in economics,
we often focus on competition

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but the deeper story
is cooperation,

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worldwide cooperation.

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What markets do is coordinate
the self interest

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of many different people

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who ultimately
have different goals,

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different preferences,
different insights,

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different knowledge,
different circumstances.

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What markets do, they coordinate
the different interests

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and knowledge
of these different people

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to produce extensive cooperation
and mutual gain.

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That's one of the deep lessons
of economics. Thanks.

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- [Narrator] If you want
to test yourself,

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click "Practice Questions."

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Or, if you're ready to move on,
just click "Next Video."

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♪ [music] ♪