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Prices are compressed information
A price does more than state cost: it coordinates what buyers want with what sellers can supply.
The idea
When demand rises or supply falls, prices often increase. That signal encourages conservation by buyers and greater production by sellers.
An example
A sudden rise in hotel prices during an event signals scarce rooms, even if you know nothing about local occupancy data.
Put it into practice
When a price moves sharply, look for the change in demand, supply, expectations, or all three.
Test yourself: A sharp price increase can signal…
Higher demand or lower supply
Correct. Prices often compress changes in demand, supply, and expectations.
Explanation and illustrative examples by One Card Wiser. Source linked for further reading.
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