In an academic article published in 1945, Nobel Laureate Friedrich Hayek wrote:

Fundamentally, in a system where the knowledge of the relevant facts is dispersed among many people, prices can act to coordinate the separate actions of different people. . . . We must look at the price system as . . . a mechanism for communicating information if we want to understand its real function.

a. Give three examples of “relevant facts” that people need in making economic decisions.

b. Why are the relevant facts likely to be “dispersed among many people”? What problems does the dispersion of these facts pose for a centrally planned economy?

c. How does the price system “act to coordinate the separate actions of different people”?