Case Description: Nobel Prize-Winner F. A. Hayek on the "Miracle" of the Pricing System

Hayek contends that the market system is an extremely efficient pricing mechanism, similar to Adam Smith and Milton Friedman. In Brickley, Smith, and Zimmerman (2016) the authors used tin and its cost to highlight how quickly market participants will react to changes in market prices (i.e. they will use less tin when market prices increase). The 'miracle' is that they do not have to know why tin's price moved, what else the tin is being used for, or anything else about the price of tin; their reaction is in response to the price and nothing else. The tin will find its way to the person that can use it to its maximum productive capability. The decreased demand for tin will mean the demand for some other resource will increase and eventually the change in tin demand will reverberate throughout the entire economic system.

1. Hayek argued that decentralization of economic decisions in the economy leads to an efficient resource allocation.
2. What differences exist within the firm that makes the link between decentralization and efficiency less clear?

Economic concepts from Chapter 3 that you could integrate into your response: (a) The Price Mechanism, (b) The Coase Theorem, (c) Externalities, (d) Market versus Central Planning, (e) Allocation of decision rights, and (f) Asymmetric Information.