Markets Link the World

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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- [Alex] 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.

- [Narrator] If you want
to test yourself,

click "Practice Questions."

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

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