[Script Info]
Title: 
[Events]
Format: Layer, Start, End, Style, Name, MarginL, MarginR, MarginV, Effect, Text
Dialogue: 0,0:00:00.00,0:00:05.39,Default,,0000,0000,0000,,♪ [music] ♪
Dialogue: 0,0:00:14.90,0:00:17.63,Default,,0000,0000,0000,,- [Alex] A modern economy\Ndepends on the cooperation
Dialogue: 0,0:00:17.63,0:00:19.98,Default,,0000,0000,0000,,of vast numbers of strangers,
Dialogue: 0,0:00:19.98,0:00:22.49,Default,,0000,0000,0000,,but how is this cooperation\Ncoordinated?
Dialogue: 0,0:00:22.97,0:00:25.34,Default,,0000,0000,0000,,Let's revisit the economics\Nbehind roses,
Dialogue: 0,0:00:25.34,0:00:28.10,Default,,0000,0000,0000,,but this time,\Nlet's go back to 1973.
Dialogue: 0,0:00:28.70,0:00:33.02,Default,,0000,0000,0000,,In the 1970s, the price of oil\Nskyrocketed so it made sense
Dialogue: 0,0:00:33.02,0:00:36.76,Default,,0000,0000,0000,,to economize,\Nbut oil has many uses.
Dialogue: 0,0:00:37.44,0:00:41.73,Default,,0000,0000,0000,,So which uses should we cut back\Nand which should we maintain?
Dialogue: 0,0:00:43.16,0:00:47.39,Default,,0000,0000,0000,,In a market economy, no one person\Ndecides these questions
Dialogue: 0,0:00:47.39,0:00:51.35,Default,,0000,0000,0000,,or perhaps more accurately,\Neveryone does.
Dialogue: 0,0:00:51.35,0:00:54.83,Default,,0000,0000,0000,,A price is a signal\Nwrapped up in an incentive.
Dialogue: 0,0:00:55.43,0:00:59.26,Default,,0000,0000,0000,,So when the price of oil increased,\Nit signaled that oil
Dialogue: 0,0:00:59.26,0:01:02.26,Default,,0000,0000,0000,,had become more scarce\Nand it gave everyone
Dialogue: 0,0:01:02.26,0:01:05.55,Default,,0000,0000,0000,,an incentive to listen\Nto that signal.
Dialogue: 0,0:01:05.55,0:01:09.90,Default,,0000,0000,0000,,It said, "Find ways\Nto economize on oil
Dialogue: 0,0:01:09.90,0:01:13.48,Default,,0000,0000,0000,,or develop substitutes\Nand you will profit."
Dialogue: 0,0:01:13.48,0:01:15.44,Default,,0000,0000,0000,,When the price of oil\Nfirst increased,
Dialogue: 0,0:01:15.44,0:01:17.68,Default,,0000,0000,0000,,most roses bought\Nin the United States were grown
Dialogue: 0,0:01:17.68,0:01:21.34,Default,,0000,0000,0000,,in greenhouses in New Jersey,\Nin Pennsylvania.
Dialogue: 0,0:01:21.34,0:01:24.45,Default,,0000,0000,0000,,The increased price of oil\Nmeant that it cost more
Dialogue: 0,0:01:24.45,0:01:28.14,Default,,0000,0000,0000,,to heat those greenhouses,\Nwhich meant a shift upwards
Dialogue: 0,0:01:28.14,0:01:32.00,Default,,0000,0000,0000,,in the supply curve for flowers\Nand an increase in the price.
Dialogue: 0,0:01:32.75,0:01:34.99,Default,,0000,0000,0000,,The result was that\Nit encouraged people
Dialogue: 0,0:01:34.99,0:01:36.67,Default,,0000,0000,0000,,to turn to substitutes.
Dialogue: 0,0:01:36.67,0:01:40.49,Default,,0000,0000,0000,,Such as chocolate and Teddy bears\Nto give to their loved ones
Dialogue: 0,0:01:40.49,0:01:44.10,Default,,0000,0000,0000,,at Valentine's Day,\Nbut the story doesn't end there.
Dialogue: 0,0:01:44.75,0:01:48.12,Default,,0000,0000,0000,,Seeing the higher price of oil,\Nentrepreneurs began to think
Dialogue: 0,0:01:48.12,0:01:50.52,Default,,0000,0000,0000,,about other ways\Nto produce flowers.
Dialogue: 0,0:01:51.13,0:01:54.71,Default,,0000,0000,0000,,Instead of heating a greenhouse,\Nwhy not use the natural heat
Dialogue: 0,0:01:54.71,0:01:57.18,Default,,0000,0000,0000,,of the sun and transport the roses.
Dialogue: 0,0:01:57.93,0:02:01.62,Default,,0000,0000,0000,,Entrepreneurs encouraged farmers\Nin Kenya and Ecuador
Dialogue: 0,0:02:01.62,0:02:03.45,Default,,0000,0000,0000,,to start growing roses.
Dialogue: 0,0:02:03.45,0:02:06.83,Default,,0000,0000,0000,,And they began to invest\Nin a new global infrastructure
Dialogue: 0,0:02:06.83,0:02:09.40,Default,,0000,0000,0000,,to deliver roses around the world.
Dialogue: 0,0:02:10.20,0:02:11.70,Default,,0000,0000,0000,,Who could have predicted it?
Dialogue: 0,0:02:11.70,0:02:14.82,Default,,0000,0000,0000,,That one way of adjusting\Nto a reduced supply of oil
Dialogue: 0,0:02:14.82,0:02:17.40,Default,,0000,0000,0000,,was greater consumption\Nof chocolate?
Dialogue: 0,0:02:17.40,0:02:20.26,Default,,0000,0000,0000,,And another way,\Nwas by importing roses.
Dialogue: 0,0:02:20.26,0:02:23.51,Default,,0000,0000,0000,,In fact, no one\Ncould have predicted,
Dialogue: 0,0:02:23.51,0:02:27.85,Default,,0000,0000,0000,,let alone plan all the myriad ways\Nin which people responded
Dialogue: 0,0:02:27.85,0:02:29.77,Default,,0000,0000,0000,,to the increased price of oil.
Dialogue: 0,0:02:30.40,0:02:33.28,Default,,0000,0000,0000,,That's because no one knows\Nall the information
Dialogue: 0,0:02:33.28,0:02:35.02,Default,,0000,0000,0000,,that the market uses.
Dialogue: 0,0:02:35.02,0:02:37.59,Default,,0000,0000,0000,,Everything from the cost\Nof growing greenhouses,
Dialogue: 0,0:02:37.59,0:02:40.57,Default,,0000,0000,0000,,to the demand for roses\Nversus chocolate,
Dialogue: 0,0:02:40.57,0:02:42.64,Default,,0000,0000,0000,,to the value\Nthat a particular piece
Dialogue: 0,0:02:42.64,0:02:46.90,Default,,0000,0000,0000,,of land in Kenya has\Nfor growing flowers versus coffee.
Dialogue: 0,0:02:47.70,0:02:51.32,Default,,0000,0000,0000,,No single individual\Nknows all of this information.
Dialogue: 0,0:02:51.32,0:02:52.84,Default,,0000,0000,0000,,It's dispersed.
Dialogue: 0,0:02:52.84,0:02:57.46,Default,,0000,0000,0000,,So when oil becomes scarce,\Nwe want people all over the world
Dialogue: 0,0:02:57.46,0:03:01.73,Default,,0000,0000,0000,,to use this dispersed information,\Ntheir information
Dialogue: 0,0:03:01.73,0:03:06.67,Default,,0000,0000,0000,,and their ingenuity to figure out\Nhow best to economize on oil.
Dialogue: 0,0:03:07.51,0:03:10.73,Default,,0000,0000,0000,,The price system does this\Nin a remarkably efficient way.
Dialogue: 0,0:03:11.52,0:03:15.14,Default,,0000,0000,0000,,The Kenyan farmer doesn't have\Nto know anything about oil
Dialogue: 0,0:03:15.14,0:03:17.89,Default,,0000,0000,0000,,to have an incentive\Nto do the right thing.
Dialogue: 0,0:03:18.42,0:03:22.69,Default,,0000,0000,0000,,He just sees that the price paid\Nfor roses has increased
Dialogue: 0,0:03:22.69,0:03:26.26,Default,,0000,0000,0000,,and so following his self interest,\Nhe starts to produce more roses.
Dialogue: 0,0:03:27.74,0:03:32.17,Default,,0000,0000,0000,,Ultimately, that frees up more oil\Nto be used in the production
Dialogue: 0,0:03:32.17,0:03:35.05,Default,,0000,0000,0000,,of jet fuel where there\Nare fewer substitutes.
Dialogue: 0,0:03:35.75,0:03:39.90,Default,,0000,0000,0000,,Millions of decisions like this\Nmade all over the world,
Dialogue: 0,0:03:39.90,0:03:43.16,Default,,0000,0000,0000,,rearrange and reallocate\Nthe world's production.
Dialogue: 0,0:03:43.16,0:03:47.10,Default,,0000,0000,0000,,Taking oil from where\Nit has low value and moving it
Dialogue: 0,0:03:47.10,0:03:51.41,Default,,0000,0000,0000,,to where it has high value\Nso that we produce the most value
Dialogue: 0,0:03:51.41,0:03:53.50,Default,,0000,0000,0000,,from our limited resources.
Dialogue: 0,0:03:53.92,0:03:56.91,Default,,0000,0000,0000,,That is the invisible\Nhand in action.
Dialogue: 0,0:03:57.53,0:03:59.86,Default,,0000,0000,0000,,If it had been invented,\Nthe price system
Dialogue: 0,0:03:59.86,0:04:03.64,Default,,0000,0000,0000,,would be one of the most amazing\Ncreations of the human mind.
Dialogue: 0,0:04:04.17,0:04:07.28,Default,,0000,0000,0000,,But like language,\Nit wasn't invented,
Dialogue: 0,0:04:07.28,0:04:11.03,Default,,0000,0000,0000,,and it worked long before\Nanyone had any understanding
Dialogue: 0,0:04:11.03,0:04:12.80,Default,,0000,0000,0000,,of its principles.
Dialogue: 0,0:04:12.80,0:04:16.22,Default,,0000,0000,0000,,As Nobel Prize winning economist,\NVernon Smith, has put it,
Dialogue: 0,0:04:16.22,0:04:20.37,Default,,0000,0000,0000,,"The pricing system\Nis a scientific mystery as deep,
Dialogue: 0,0:04:20.37,0:04:25.58,Default,,0000,0000,0000,,fundamental, and inspiring\Nas out of the expanding universe
Dialogue: 0,0:04:25.58,0:04:27.93,Default,,0000,0000,0000,,or the forces that bind matter."
Dialogue: 0,0:04:27.93,0:04:30.62,Default,,0000,0000,0000,,We'll be exploring more\Nabout the mystery
Dialogue: 0,0:04:30.62,0:04:33.53,Default,,0000,0000,0000,,and the marvel of the price system\Nin the next video.
Dialogue: 0,0:04:34.41,0:04:36.06,Default,,0000,0000,0000,,- [Narrator] If you want\Nto test yourself,
Dialogue: 0,0:04:36.06,0:04:38.36,Default,,0000,0000,0000,,click "Practice Questions."
Dialogue: 0,0:04:38.36,0:04:41.61,Default,,0000,0000,0000,,Or if you're ready to move on,\Njust click "Next Video."
Dialogue: 0,0:04:41.61,0:04:46.78,Default,,0000,0000,0000,,♪ [music] ♪