When goods are scarce, we often want people to consume less of those goods; typically only as much as absolutely necessary in the hopes that there will be enough to go around. The fundamental question is how do we structure the marketplace in order for goods to be used in the most efficient and effective way possible by bringing them to consumers who need them the most? This is not a task that can be organized by one person or even an entire governmental agency rationing the resource and centrally allocating it as they see fit. It is simply not possible for any one person or entity to gain enough information to accurately make those decisions and in actuality we do not need them to. The job of the price system is to fill this void and serve as a communication network and in most cases it does so more competently and productively than most people give it credit for. With any marketable resource, when the supply becomes scarce, the price will undoubtedly rise, assuming the demand remains stable. Similarly, if the opposite happens and the supply grows exponentially, due to technological advancements or improvements in production processes, the price will surely fall. These assertions might seem obvious or even rudimentary to some, but the point is that we often take them for granted. How often do we ask why they occur, why they matter, or why we should care?
Prices matter because they communicate a vital piece of economic information to societies in terms of scarcity. For example, when a cyclone devastates the Banana crop in Queensland, Australia, Australians see the prices of bananas rise in grocery stores and that has an immediate effect on their behavior. They don’t necessarily need to know why the price has risen; they just see that it will now cost them more than it did the day or week before. As a result, Australians might now not buy any or at least fewer bananas until the price drops to level they are willing to accept. On the other end of the spectrum, the higher price will encourage profit seeking farmers in other subtropical regions of Australia to produce more or foreign farmers to export more bananas to take advantage of the temporarily high prices. As the supply in the country increases, the price will level off back to its equilibrium price at which point, the extra efforts to supply Australians with bananas would discontinue.
The central coordinating function through all this is the price system. It is the central mechanism that supplies entrepreneurs and consumers with the information that runs this intricate and spontaneous arrangement. This is the reason why you will often hear Austrian Economist claim that they are fundamentally against price controls and price gouging laws. Prices do not arbitrarily change because entrepreneurs all simultaneously become greedy. They change because they are direct responses to real world occurrence. Artificially forcing prices down through government intervention will not only prevent allowing consumers to alter their decisions to respond to real experiences of shortages, but it will also obstructs suppliers from realizing any incentives to supply additional resources to a region that has suffered an unexpected scarcity. When governments force a set price for any good, it is, by default, not an equilibrium price which will inevitably cause individual players in a market to act in a way that they would otherwise not have.