What are prices act as information channels?

Prices are like messages that help people make good choices when buying and selling things.

Imagine you're at a market where everyone sells apples. If there are lots of apples and not many buyers, the sellers might lower their prices, it's like saying, “We have too many apples!” On the other hand, if there are few apples and lots of people want them, the price goes up, like saying, “These apples are special!”

Prices act as information channels because they tell buyers and sellers what’s going on in the market without anyone needing to talk about it.

Think of prices as letters sent from one person to another. If a seller sees that prices are high, they might decide to bring more apples to the market, like sending a letter saying, “More people want apples!” Buyers see the price and know if they should buy now or wait.

It’s just like when you go to the store and see that your favorite candy is on sale. That lower price is telling you, “Buy now, it's cheaper!” And if the candy is gone from the shelf, that tells you, “Everyone wants this candy!”

So prices help people make smart choices, without needing a magic message or a shout from across the market.