received. We measure the quantity by the money that flows from those who supply financial capital to those

who demand it.

Two factors can shift the supply of financial capital to a certain investment: if people want to alter their

existing levels of consumption, and if the riskiness or return on one investment changes relative to other

investments. Factors that can shift demand for capital include business confidence and consumer confidence

in the future—since financial investments received in the present are typically repaid in the future.

4.3 The Market System as an Efficient Mechanism for Information

The market price system provides a highly efficient mechanism for disseminating information about relative

scarcities of goods, services, labor, and financial capital. Market participants do not need to know why prices

have changed, only that the changes require them to revisit previous decisions they made about supply and
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