Economics 101 – 1 of 8 – Demand and Supply, Consumer Goods, Prices and Exchange – Murray N Rothbard

1. Demand and Supply, Consumer Goods, Prices and Exchange

Microeconomics starts with the basic fact that each person has short term and long term goals, like buying a ham sandwich and graduating from college. People act in the world to accomplish something. Human action is purposive. You employ different means to achieve certain goals.

Rothbard begins with the simple situation of “Crusoe Economics” – one laborer on an island. Capital is everything used in production that is not land or labor. Production ends up with consumer goods which are consumed. The free market coordinates everything. No world planning board can do this. Microeconomics is the study of how all this works. Resources are scarce, not superabundant.

Humans prefer stuff now rather than later. This is called time preference. Preferences are ordinal, (a, b, c), not cardinal (1, 2, 3).

Action is risky. The entrepreneur is a risk-taking capitalist. Our discipline is qualitative, not quantitative. The Law of Diminishing Marginal Utility states that as a person increases consumption of a product, while keeping consumption of other products constant, there is a decline in the marginal utility that a person derives from consuming each additional unit of that product. The lower the price the more will be purchased. The higher the price the less will be purchased.

The first of eight sessions from Murray Rothbard’s Economics 101 series.

A collection of eight speeches and lectures by Murray N. Rothbard, spanning from the 1970s to the early 1990s. He is speaking in a small classroom setting, explaining economics from the ground up, and systematically in the manner of a classic 101 course on the topic—but with a revolutionary approach.

This lecture as a Podcast: http://enemyofthestate.podomatic.com/

Sourced from: https://mises.org/library/economics-101

Source: Economics 101 – 1 of 8 – Demand and Supply, Consumer Goods, Prices and Exchange – Murray N Rothbard – YouTube

http://www.readrothbard.com/economics-101-1-of-8-demand-and-supply-consumer-goods-prices-and-exchange-murray-n-rothbard

TRANSCRIPT

00:00
or Michael means and economics is
00:02
dealing with the individual with the
00:04
individual level individual action the
00:06
market crisis dealing with the man
00:09
supply production the oil price thing
00:14
which is happening from work on these
00:15
these things are part of micro macro
00:17
these are the larger pictures like
00:20
inflation unemployment business cycles
00:22
that’s what everybody forecast we kind
00:25
of must forecast every year always
00:26
always get it wrong poor guys always way
00:28
off the beam that’s macro micro is in
00:31
pretty good shape I think it’s basically
00:33
sort of a consensus about micro macro is
00:36
pretty screwed up for good reasons any
00:39
rate we’re dealing now sort of the basic
00:41
economics them micro is even good macro
00:44
is essentially based on micro so it’s
00:47
best to take micro first all right we
00:49
deal and economics with we don’t the
00:51
only with numbers and graphs as usual
00:54
you haven’t an economics the graphs came
00:57
in and the numbers came in in order to
00:58
simplified it’s not a simple basis of
01:01
well theory everybody got on chanted
01:04
with a grass grass became an end of
01:05
themselves an economist began to lose
01:08
sight of our actual people and what’s
01:09
going on in the world that’s been a
01:11
danger and the higher stratospheric
01:14
reaches of economic theory what we’re
01:16
dealing with economics really deals with
01:18
as an individual and starts with a very
01:20
simple fact simple basic thing namely
01:22
everybody has goals which they’re trying
01:24
to achieve he or she is trying to
01:26
achieve the goal can be a very simple
01:28
like eating a sandwich than one our
01:30
simple short-run goal can be much longer
01:33
ago per graduating from Polly of getting
01:35
a job in octal engineering or whatever
01:37
and the whole structure of goals and in
01:40
order to achieve these goals you have to
01:42
employ resources of some sort I have to
01:44
do something in other word by having
01:47
goals of the sort you’re assuming that
01:49
people can achieve them at least can
01:51
take measures and take steps to buy a
01:53
ham sandwich other find a newspaper or
01:55
to buy a hi-fi set or whatever or to
01:58
graduate from Polly and these things are
01:59
at least presumably accomplished a bomb
02:02
case in other words everybody has
02:04
different objectives in mind and has an
02:06
idea of how to arrive at how to go about
02:08
it so basically the the source of
02:11
economic theory economic theories of
02:13
deductive
02:13
system built on this in this basic fact
02:15
when the economist for action other word
02:18
the fact that people act in the world to
02:21
accomplish something and I say the
02:23
accomplishment gonna be very short rock
02:24
could be very simple can be eating the
02:26
sandwich or it can be very complex a
02:28
whole series of things it doesn’t matter
02:30
the point of view economics it doesn’t
02:32
matter what the goals are
02:33
that’s up to some other discipline to
02:35
worry about what we deal with is the
02:37
fact that people employ resources of
02:40
different sorts to arrive at goals ok
02:43
this is an action there you have goals
02:44
and you’ve got resources the try to
02:49
achieve them this is also called a means
02:51
ends relationship you have an end or an
02:53
objective and you employ a means
02:55
different means to try to achieve it
02:57
okay what are some of the resources
02:59
won’t first place we kind of us like to
03:02
deal with what’s known as Crusoe
03:03
economics Robinson Crusoe the familiar
03:06
with us cool tale also in the movies
03:08
where the guy shipwrecked he wind up an
03:11
island somewhere has South Pacific and
03:13
he’s got no resources except himself he
03:15
has different goals is that she wanted
03:17
got to keep alive he could be the basic
03:19
before you accomplishing anything else
03:21
so the case of Crusoe reason why we like
03:24
to use this is a stark situation where
03:25
we can isolate one person can you take
03:28
one person these are being nature’s been
03:30
bringing other people later on that’s
03:32
how you so dealing economic take one
03:34
simple situation and you add on a more
03:37
complex situation if you analyze it so
03:39
if you have Crusoe ok he’s got different
03:42
goals or objectives food he looks around
03:45
fast to find out what the sort of who
03:46
they are shelter and clothing or
03:50
whatever so that’s some of this
03:51
priorities he lists them in a certain
03:53
rank what others mean what are the
03:55
resources that he had like looks around
03:56
personally got himself got his own own
03:58
personal energy and he’s got his own
04:01
technological knowledge presuming he
04:03
doesn’t have amnesia he knows how to
04:05
fish or chop down trees or build a bow
04:07
and arrow or something like that
04:08
technology is low tech high tech doesn’t
04:10
make it on desert island our Cousteau
04:12
Island unfortunately the knowledge about
04:14
how to construct the computer or
04:16
something how to use it they’re not
04:17
going to do much good but low tech even
04:19
if off-road tech an important text for
04:22
him namely how efficient how to hunt and
04:24
it sort of stuff and I construct a log
04:26
cabin
04:27
all right these got technological ideas
04:30
and it’s also got different natural
04:32
resources look surrounds up let’s say
04:33
there’s trees or that’s fish looks
04:36
around find out the natural resources
04:38
are and that’s what he starts off with
04:39
start off with technological ideas own
04:41
personal energy and natural resources
04:43
this is basically what we have in the
04:45
world in general the world starts off
04:47
you look at the caveman came out start
04:50
over just a person some kind of ideas of
04:52
what to do and resources person’s
04:54
resources now economics really begins as
04:58
a discipline the late 18th century
05:00
England but we’re sort of stuck with a
05:03
little language a lot of the language of
05:05
the concepts we’re still stuck with even
05:08
though they’re the words a little
05:09
different now we have to adjust to that
05:10
we can’t change the word just has
05:12
explained why it’s a little different
05:14
thoroughly here personal energy used to
05:16
be coal labor
05:17
this is coal labor labor energy and
05:20
nowadays when we think of labour we
05:21
think of a proletariat types and Marxism
05:23
came and we think of a laborer or
05:25
somebody who’s working a steel mill or
05:27
something like that this concept of
05:29
labour means anybody who works in
05:31
production we I’m the fine but actually
05:32
that means doing something in the world
05:34
to transform it the consumer good we’ll
05:37
get to that later
05:37
so everybody is a laborer and that’s
05:39
anybody who works in production in labor
05:41
in this sense the president of General
05:43
Motors in labor
05:44
just as the guy who works on the
05:45
assembly line who isn’t a laborer a lot
05:48
of people who are cooking coupons
05:49
doesn’t mean they’re not important does
05:50
they’re not laborers people were
05:52
stockholders per se or bondholders are
05:55
not engaging in personal labor in the
05:58
plant those labor which really means
05:59
here personal energy natural resources
06:02
because there was 18th century
06:04
agricultural written as coal land the
06:07
famous land and labor so we use what
06:09
we’re stuck with a world of language
06:10
stuck all the world labor but again it
06:12
doesn’t quite mean what we think I’ve
06:13
got a common sense terms now land and
06:15
economics means ground land means
06:18
natural resources means what doesn’t
06:20
mean other was this building here we
06:21
think of when we think of billing we
06:24
think of it as a building here but land
06:25
is considered an economic only the
06:27
ground underneath
06:28
in other words nature made and not
06:30
man-made soul and also includes fish
06:32
whose natural resources on the water
06:34
whose water see when they were making up
06:37
economic 19th century water was not
06:39
considered a scarce resort
06:40
consider superabundant and i have plenty
06:43
of wet agriculture
06:44
nowadays we we know better water skier
06:48
so what are the scarce resource gifts
06:50
resource also other things like TV
06:53
channels frequency things like that or
06:55
also land and that’s some of the natural
06:58
resources space is land ocean has lots
07:02
of resources in the ocean which haven’t
07:03
been tapped yet there’s mineral in the
07:05
bottom of the end of the sea and things
07:06
like that it’s little and a quote
07:08
unquote other words natural resource the
07:11
land means natural resources labor means
07:13
personal energy ok what else is there
07:15
what else is everything else in other
07:17
word people man take natural resources
07:21
and transform them in order to get to
07:22
what the consumer goods so they can use
07:24
it in other words who sells got to eat
07:26
he’s got to take the resources you’ve
07:29
got like shoot shoot the deer or catch
07:30
the fish and eat it so we’ve got do
07:33
various things to get the consumer goods
07:34
the objective of the working hard to do
07:37
this as the windup a consumer goods on a
07:39
food shelter clothing
07:41
high-five settle it up these things are
07:44
consumer good use as an end of
07:45
themselves so the objective of action is
07:48
all about consumer goods are coming off
07:50
the assembly line so to speak everything
07:53
else which is not labor or natural
07:57
resources called capital goods what’s
07:59
catalog consists of everything used in
08:01
production which is not land or labor
08:04
could be the net fishing net use for
08:06
fishing pole due to fish bore an hour to
08:09
hunt anything like that anything right
08:11
now it could be roads trucks tires on a
08:15
truck all these things are factories and
08:17
forth goods and process all these things
08:20
are part of capital till you get to the
08:21
consumer for example if you just ate a
08:24
ham sandwich and michelangelo’s take
08:26
that on my favorite examples the end
08:29
process of millions of people engaged in
08:32
production by what is production
08:34
production is a transformation the use
08:36
of labor working on natural resources to
08:39
transform in the capital different types
08:42
of capital finally you wind up with
08:43
consumer good the production is this
08:45
whole process of starting a land and
08:47
labor and winding up a consumer goods so
08:49
different degrees of capital
08:51
so for example let’s take a ham sandwich
08:52
and like a rhinestone you have an
08:54
enormous amount of cooperating factors
08:55
in there it’s a whole production trio of
08:58
structure production starting with a
09:00
farmer and miner and so forth going for
09:03
about thirty years at least you get the
09:04
ham sandwich okay what do you got you
09:06
got different ingredients going into it
09:08
to produce the hams now just sell it to
09:10
the consumer you gotta have a ham course
09:12
you have to have the bread
09:13
you got cheese butter yeah tomato yeah
09:18
well these things got to be brought
09:19
together on a retail level and yet they
09:22
have the workers and it brings
09:24
encounters okay yeah you gotta have
09:27
counters in refrigerated units you know
09:28
one sort of stuff and chairs somebody
09:31
got to produce the chair and sit on it
09:32
all these things have to be produced
09:34
they all have to be combined together
09:36
lovely one ham sandwich you have to be
09:37
bruised for many years the ham sold by a
09:40
wholesaler and they get it from a Java
09:42
or like the eastern seaboard then you
09:44
get a fish your car going up a
09:45
meatpacker a meatpacker
09:46
then package the meetings have a
09:48
slaughterhouses courthouse get something
09:51
a former raises a pig they have
09:53
stockyard you have trucks in every step
09:55
of the way and gasoline for the trucks
09:56
and tires and we on and on and I was
09:58
only for the ham so the pigs have to eat
10:00
usually corn like want us to be grown
10:03
and all that on machinery every step of
10:06
the way and it’s and all as I said just
10:08
from one unit and it takes 30 years
10:10
involved millions of people for one
10:11
lousy ham sandwich that’s incredible and
10:14
every country in the world probably is
10:15
involving this people growing ebony for
10:18
pencils and Africa and Footwear and so
10:20
on which is then you have that paper
10:22
have that pencil to record all this
10:23
stuff and figure out what’s going on
10:24
only but every step of the way you have
10:26
that land lease to grow on you have to
10:28
have different kinds of capital and I
10:31
have to have labor the interesting thing
10:33
is it works at every step of the way one
10:35
of the amazing things about the market a
10:37
free market economy because it all works
10:39
comedian a ham sandwich right today you
10:41
don’t have to have some rural Planning
10:43
Board eight guys in the plan board
10:45
sitting around thirty years ago I say
10:47
let’s see him January 28 1986 we have to
10:50
get on a ham sandwich there for you guys
10:51
are raising pigs you over there go raise
10:54
the corn and so forth gotta get rough on
10:56
his hams now nobody does that there’s a
10:57
world Planning Board kind of figure this
10:59
out if there were we will be in big
11:01
trouble
11:01
it all works every step of the way only
11:03
things happen in every step of the way
11:06
with no shortages and those surpluses
11:07
everything fits together like a
11:09
latticework structure the market economy
11:12
is like a lattice more projects like a
11:13
lace thing it all fit then how come it
11:15
all fits and what there’s no planning
11:17
bore the fits it all and the market
11:18
itself does it
11:19
and really what microeconomics is a
11:21
study how the thing works and what
11:23
happens when the government’s intervenes
11:25
in the process and screws everything up
11:26
the big factor here which is true both
11:29
in Crusoe and ferocity the big factor is
11:32
this we contrast the world for the guard
11:35
when I call a Garden of Eden model some
11:37
people believed mankind used to be in
11:39
the Garden of Eden we’ve been kicked out
11:40
for various transgressions whether it’s
11:43
true or not it’s interesting mother look
11:44
at the Garden of Eden
11:45
everybody classifies his or her wants an
11:48
unlimited fashion but no work no nothing
11:50
snap your fingers and Pepsi’s trickling
11:52
down your throat nobody has to work out
11:54
a ways to produce it why is that cause
11:56
there’s no seriously there’s no scarcity
11:57
I don’t need private property only labor
11:58
you know to work unfortunately we were
12:00
kicked out of the garden of the industry
12:02
they’ve ever existed and so in the world
12:04
as it exists on human history is
12:06
tremendous scarcity you don’t have
12:07
unlimited abundance of all factors of
12:09
production world good the Garden of Eden
12:11
model is unlimited abundance of all
12:12
desire for good something want to hear a
12:14
symphony and snap my fingers and get it
12:16
right right there we have enough there’s
12:18
somebody working to produce it and so we
12:20
have the ever-present lack of scarcity
12:21
basically meaning scarcely resources
12:24
relative to a goal that we have we’ve
12:27
got the kind of accomplished seriously
12:29
resources scarcity we’ll see in a minute
12:31
what the resources are obviously the
12:32
scarce of land labor and capital here’s
12:34
no time so we’d like to have more of if
12:36
we had more we could produce more
12:37
consume Morgan if higher standards of
12:39
living
12:39
we had no scarcity if everything was
12:41
super abundant I wouldn’t have to work
12:43
we have to worry about anything we just
12:44
Pepsi trickling down our throat just
12:46
like that or whatever equivalent what
12:47
happens is the caveman has everything is
12:50
extremely scarce
12:51
they’re in bad shape Crusoe I was in bad
12:53
shape everything is very good he’s gonna
12:54
die tomorrow he doesn’t get food
12:56
immediately the progress of the human
12:57
race the progress of civilization is
12:59
essentially the alleviating of scarcity
13:01
seriously it’s still layer just a lot
13:03
less of it a lot further from the brink
13:06
and Crusoe is or the caveman was a
13:08
higher living standard process of human
13:11
race essentially the progress
13:14
the minutiae nor alleviation of scarcity
13:16
here see still able to flaunt loss of it
13:18
an intellectual world there’s sort of
13:22
fashions the only one of a few good
13:23
things about me and my advanced ages
13:25
I’ve seen them all you know all the
13:27
fashions come and go every five years
13:28
some new nut comes on the news theory
13:31
everybody adopts it for about five years
13:33
and forgets it five years later one
13:35
nutty theory that came in about 1970 but
13:38
there’s no more scarcity economics
13:40
microeconomics might have been correct
13:41
for the old days when there was scarcity
13:43
now there’s no scarcity it’s called we
13:45
liver they’ve said in the post scarcity
13:47
world what does that mean I know what it
13:49
means but I really would means we’re
13:51
back in the Garden of Eden nobody has to
13:52
work nobody is to produce no not quickly
13:55
we’re not in that situation I remember I
13:57
had a debate with some turkey I think
14:00
there’s a market University in
14:01
Washington which is odd place anyway I
14:03
was on the question about do we live in
14:04
a post-scarcity world he was maintaining
14:06
we lived the other post-scarcity well
14:08
therefore we don’t the work and
14:09
therefore I don’t know what therefore
14:11
wasn’t Oliver a murky to his conclusions
14:13
rusev will have socialism I’m not sure
14:16
why that was the conclusion presumably
14:17
if it is no scarcity you can have
14:19
anything you want deuces are a wild so I
14:22
said well if it’s true the professor
14:24
selling so is right we live in a post
14:26
scarcity world why does he care up his
14:28
paycheck why does he least tear up his
14:30
raises that he gets every year anyway
14:33
his answer was Andrews answer that’s
14:35
because I too have been sucked into the
14:36
capitalist ethos so I was interesting
14:38
reply in other words East I also sang
14:41
isn’t bidding they’re riskier something
14:43
he’s trying to alleviate as much as
14:44
every anybody else that has been
14:47
forgotten I haven’t heard that for long
14:48
time them but posts key as a matter of
14:49
fact the next fashion that came in too
14:52
early after that I think my son 1975 oh
14:54
my god everything is scarce
14:56
we’re gonna run out of resource that was
14:58
a big gimmick for about five years from
15:00
1975 1980 the same jerks while claiming
15:03
we live in a post-scarcity world and
15:05
therefore we should have socialism I
15:06
don’t know how therefore comes in I can
15:08
never figure that out any right then set
15:10
from 75 80 we live all resources are
15:13
running out of oil is going to run out
15:15
Energy’s going to run out
15:16
follow us going around therefore we have
15:18
socialism the conclusion is always the
15:20
same there’s never any connection they
15:23
have to run around refuting that and it
15:24
turned out by 1980 they shut up after
15:26
that because
15:27
there’s plenty of resources I mean there
15:29
is scarcity like there always has been
15:30
but there’s this tiny resource nothing
15:32
ran out will get is of the oil paper by
15:35
the way fairly shortly we got into the
15:37
whole energy crisis the alleged energy
15:38
crisis and all the rest of it it’s
15:40
interesting example was stopped in
15:41
action so we have an ever-present scarce
15:44
of resources people left therefore have
15:46
to allocate their resources to the
15:48
highest values so their highest values
15:50
and try to make sure they don’t waste
15:52
them the sense that they make sure they
15:53
don’t spend their time or their energy
15:55
or whatever and stuff that would read
15:57
figure though they really should spend
15:59
on something else so this sort of these
16:01
resources by the way also includes time
16:03
time as a resource scarce as you all
16:06
know what are you gonna do tonight what
16:09
do you do for them a block of hours from
16:10
say Ito 11:00 or something you have all
16:12
sorts of choice every person either
16:14
concrete choice okay you can go to a
16:16
whole bunch of movies went out not all
16:18
at once see people you can do homework
16:20
each of you could probably get a list
16:23
right now seven or eight things you
16:24
could do tonight how do you decide which
16:26
to do well you’re the silent great based
16:27
on your own personal values which you
16:28
think is most important key things more
16:31
fun whatever it is it’s either side one
16:32
way or the other doesn’t have to be a
16:34
excruciating decision if you have to
16:36
spend ten hours on it make a snap
16:38
judgment economist again don’t care
16:40
about how long it takes that I get a
16:41
decision it’s not our bag that’s the
16:42
psychologist or whatever well we’re
16:45
interested in the fact everybody’s got
16:47
scarce resources everybody’s got goals
16:48
they’re trying to achieve scarce time
16:50
scarce money stairs labor here is
16:52
capital whatever and they trying to
16:54
allocate as best they can as possible
16:56
advantage if you pick a movie a certain
16:59
movie movie X and you go to that it
17:02
turns out it was a bummer you think then
17:04
when I wasted time and money wasting the
17:06
money going to it your wasn’t waste of
17:07
the time you could go on to something
17:08
else you could have done something else
17:09
so you’re looking back you figured if
17:12
you pick a loss like a gloss on it the
17:14
other half of was good movie figures the
17:16
psyche game you’ve benefited from this
17:18
everybody looks at the prospect early
17:20
tries to do the best he can or she can
17:22
looking backing said well GL is good or
17:24
the bad action or a good action the to
17:26
cost layer was loser
17:28
you figure out the next time you won’t
17:30
go to the movie with this director in it
17:31
a movie of this particular actor and I
17:33
could whooping
17:34
same actor usually appears in the same
17:36
kind of movies to learn from experience
17:37
hopefully you do better next time
17:40
presumably talking about Crewson also
17:43
about life in general I’m shifting back
17:46
and forth between them we have personal
17:50
energy which is school labor natural
17:52
resources and land and everything else
17:55
is your coal capital goods everything
17:57
else which transforms where labor works
18:00
on Natural Resources transforms them
18:02
finally getting the consumer goods and
18:04
as the economy develops and progresses
18:06
more and more capital as those uppercu
18:08
so he’s got us a bow and arrow or
18:09
something but we’ve got a enormous
18:11
amount of capital equipment factories
18:14
raw material mines road tires everything
18:17
else designed to take natural resources
18:19
and transform them move them over at
18:21
vast spaces and finally get to the
18:24
consumers and so one consumer goods
18:26
that’s how the whole economy is oriented
18:28
another thing about human action in
18:30
general about kuso and about life in
18:33
general is it takes time everything
18:35
takes time something take less time
18:37
others take more time and everybody
18:40
prefers having stuff now and waiting for
18:42
it so anybody has a choice of size and
18:45
price change assuming prices remain the
18:47
same somebody saw him either give you a
18:50
million dollars now or 10 years from now
18:51
what you’re gonna pick obviously or pick
18:52
now this is called a time preference
18:55
people prefer getting stuff achieving
18:57
their goals earlier than later
18:59
this conflict sort of stuff has to be
19:01
balanced against the fact people prefer
19:03
getting stuff now than later but the
19:05
more they say even invest higher that
19:06
standard of living will be in the
19:07
futures they have to choose consuming
19:09
now or saving up now consuming more
19:12
later that’s the basic we’ll get to that
19:14
more later on anyway these things take
19:16
time and the most of the time preference
19:18
and also action is risky there’s
19:20
uncertainty of the world and the
19:23
function of the intrapreneur is to meet
19:26
that uncertainty in a bear the risk of
19:28
uncertainty Chris all guys the preneur
19:30
says he hopes he can catch fish or he
19:32
hopes he can throw the cabin things like
19:33
that well everybody’s entrepreneur
19:35
becoming a mechanical engineer you hope
19:37
or expect as you have been able to get a
19:39
good job in it more entrepreneurial
19:41
other capitalists who invest a lot of
19:42
money in this and certain processes
19:44
would hope they’ll make money out of it
19:45
so this is coroner ship there’s no good
19:48
at English work for it the French word
19:50
has not been incorporated English
19:51
language
19:52
Adam Smith use the word Undertaker that
19:54
didn’t fly at least for obvious reasons
19:56
so intrapreneur is it which essentially
19:59
means a risk-taking capitalist or the
20:01
person who invest capital and some
20:03
enterprising supposed to make profits
20:05
and not suffer losses we’ll get to them
20:07
one minute and later on – right now is
20:09
sort of surveying the basic situation of
20:11
the everybody who’s selling us have
20:13
goals which we want to meet and which we
20:15
prioritize we’ve put in terms of
20:17
priorities and list them in ranked order
20:20
and you pick what your best choice most
20:22
valuable chore which you think is gonna
20:24
be best
20:24
everybody’s got a rank of choice you
20:27
pick what’s your highest value and you
20:28
help you improve to be correct this is
20:31
cool I call a value scale but it’s been
20:34
given the name and economics of utility
20:35
and it’s a little unfortunate again
20:37
because utility often means useful
20:40
objectively useful but an economics that
20:43
means really subjective evaluation it
20:46
could be useful or not if people think
20:48
that it is that’s all we care about in
20:50
this and economics in other words a lot
20:52
of left-wing intellectuals hate
20:53
cosmetics they think it’s evil thing for
20:55
a lot of women that use cosmetics well
20:56
most women don’t agree with it they like
20:58
cosmetics and their value scale
21:00
Cosmetics ranked pretty high so this is
21:03
a purely subjective it’s another thing
21:07
about utility scales is that it’s their
21:09
ordinal their ranking unfortunately than
21:12
my first big disagreement with every
21:14
textbook that I know of textbooks will
21:17
give lip service with us I’ll say yes
21:18
it’s ordinal all of a sudden I start
21:19
talking my you goals this is three you
21:22
go got to you girls
21:23
you don’t being a unit of utility and
21:25
they add it up and they multiply it
21:27
there’s no util for those are things
21:28
that you go who’s never seen a you go
21:30
it’s absurd if you want to choose
21:32
between your movie a and will be beat
21:34
you know say to yourself let’s see I
21:35
value this at eight util right so forget
21:40
it
21:40
forget you go it’s on first injunction
21:42
it’s a purely ordinal ranking order the
21:46
mathematics eleven core lexicographic we
21:48
could say we ranked at one two three
21:50
four but it should be ranked as
21:52
lexicographical and then with a b c d
21:54
the use of a number sucks economic
21:57
there’s a thing you can do something we
21:59
can add subtract views a and b and c
22:02
nobody would say c is twice B
22:04
it’s one of the sociological phenomenon
22:06
here which we’re dealing with so there’s
22:08
no such thing as usual strictly ordinal
22:10
it’s strictly ranking and rank order so
22:13
all the laws of economics in a
22:14
qualitative or not quantitative see one
22:16
of the problems with the economist is
22:17
they take a qualitative science which is
22:19
really what this is and try and convert
22:21
it to being quantitative because they
22:22
can predict precisely what’s gonna
22:24
happen I can’t do that the predictions
22:26
are always wrong when they make
22:27
quantitative predictions they always
22:28
flop and what they do is they keep
22:30
flopping they keep saying well we have
22:32
to change the model we missed out on XYZ
22:34
and a change it I still flopped this has
22:37
been going on for twenty years some of
22:39
the economists are gonna realize that’s
22:40
also customers of economists people who
22:42
buy forecast
22:43
corporations are beginning to realize
22:45
the things is a scam one of the reasons
22:48
why the customers of each economic
22:49
forecasters haven’t turned on them
22:52
before this is because of the tax
22:53
write-off he’s considered a legitimate
22:55
expense to hire economists everybody
22:57
hires economist would tell you of it
22:58
unemployment rates gonna be next year
23:00
and if it’s a lousy unemployment rate so
23:02
what you’ve hired a top economist
23:04
everybody else missed the forecast and
23:06
your expenses can be written off the
23:08
legitimate tax write-offs one sort or
23:10
another and we have a qualitative
23:12
discipline there are laws about tendency
23:14
and direction not about quantitative
23:16
game the only hunch is about
23:17
quantitative let’s get back to Crusoe we
23:19
make a couple of simplifying assumptions
23:21
here he’s got a bunch of logs he’s
23:23
chopped down a bunch a log so we’re
23:25
gonna assume that one law or one set of
23:28
logs can be used for each of three or
23:30
four different uses so you can take
23:32
these log and say okay what’s my first
23:34
priority he’s got an ordinal value scale
23:36
or no utility scale most top priority is
23:39
food for the night pick to make the logs
23:41
for a fire to cook tonight’s meat that’s
23:44
in case of Crusoe we have we come to
23:47
much more agreement that we would have
23:48
which movie to go through he’s on the
23:50
basics here down a survival second
23:53
priority might be Farva tomorrow night
23:56
and keep it for the morning okay third
23:57
priority I’d say is building a cabin its
24:02
fourth party might be setting a
24:04
perimeter of logs around the amount of
24:06
little camp that won’t come in or
24:07
whatever perimeter and it’s this
24:10
priority Billy a bull will walk down on
24:12
the beach obviously a real luxury items
24:15
be full of fan now I had these logs
24:17
point is if he has a supply supply by
24:21
the way is fine as amount of end units
24:25
of a home ingenious good meaning that
24:28
each unit of the same as any other of
24:30
the unit so what you’re dealing it was
24:31
the same law or the same horse the other
24:33
thing for more like micro purposes
24:34
they’re interchangeable you’re not
24:36
dealing with two totally different types
24:38
of wood or something like that those
24:39
plies end units of a homogeneous good if
24:42
he’s got one long as always got or one
24:45
unit he was satisfied on top priority
24:47
and let the others go by the board he
24:49
will not satisfy priority three and
24:51
forget about one in other words he will
24:53
pick his highest priority he has two
24:55
logs will pick his first two priority
24:57
and so forth I’m looking at another way
24:59
supposing he’s got three logs and he
25:01
loses one a wave comes in Washington
25:03
wire or something like that he will give
25:05
up his lowest priority part III won’t
25:07
don’t forget about food tonight it will
25:10
rearrange the logs so it’s the knockout
25:13
three and leave one and two if on the
25:15
other hand he’s got five logs and he
25:17
loses one he’ll give up the boardwalk
25:18
he’s not gonna give up the really tough
25:20
stuff what do we deduce from this deduce
25:24
that the greater the supply look good
25:27
greater the number of units that a
25:28
person has the lower the value of
25:31
ranking of each unit the value of now is
25:34
how much he’s willing to give up that
25:35
was a ranking of how much he loses if he
25:37
loses one unit he’s got a supply of
25:39
three units losing one the value of each
25:41
unit number three or third or Cu
25:43
everyone caught great of the supply the
25:46
lower the value of each unit
25:47
technically the lower the marginal
25:48
utility because utility means value
25:51
marginal means each unit if they’re
25:53
highfalutin jargon again but it’s
25:55
basically that’s what it means
25:56
so Merkel means the next unit one log
25:59
one pound of butter whatever the unit
26:01
happens to be greater supply there’s a
26:04
lower the value of each unit and lower
26:06
the margin of Chile vice versa
26:08
and almost everyone economic if you just
26:10
switch it around
26:11
simply logic lower the supply and I’m
26:15
good
26:15
the greater the value of each unit this
26:18
is cool there’s a name for this the law
26:20
of diminishing marginal utility it’s
26:23
really the same time saying the greater
26:24
the supply the lower the value of each
26:26
unit and we can put this at all
26:28
diagram benaiah are supposed to be used
26:30
for any economics make it clearer
26:32
unfortunately most cases they used to
26:34
make it more complicated
26:35
anyway if you put marginal utility or
26:37
value of each unit on the y-axis and the
26:40
only economic diagrams in microeconomics
26:41
the y-axis there’s either Margit ility
26:44
or price or something like that the
26:46
x-axis is quanta dictum of whatever okay
26:49
in this case we have quantity of a good
26:50
this is zero per boat so what they’re
26:53
saying is as your increase the quantity
26:55
of units 1 2 3 4 whatever the margin
26:59
utility keeps dropping and we don’t know
27:00
what the height is because it’s ordinal
27:02
probably shouldn’t connect the dots but
27:05
anyway we know it’s falling obviously
27:08
the greater number units the lower the
27:10
value of each unit plus a number in
27:12
units the greater the value so there’s
27:13
supposed to be a way of showing this pay
27:15
no attention of the actual distances or
27:17
things like that this is the basis of
27:19
some of the law of demand or the
27:21
analysis of consumer demand on the
27:23
market how much would people pay for
27:27
products obviously if you have well if
27:30
you have one chess set you’re not gonna
27:32
pay as much for a second one presumably
27:34
given the kind of chess set and all of
27:36
the man based on more of the machine
27:38
more utility is tries to figure out what
27:40
much people will spend on different how
27:42
much people buy different goods given
27:44
their different prices just take Wonder
27:47
Bread when my favorite trimmer purchase
27:49
I like Wonder Bread I buy a lot so I
27:51
wonder about however it’s the price of
27:53
Wonder Bread suddenly magically let’s
27:54
say the Wonder Company whatever the name
27:56
of the company is mr. Wonder Souls out
27:58
or whatever some other guy come the
28:00
other guy’s a nut and the other guy says
28:02
I think Wonder Bread is so great a
28:04
consumers have to pay a lot of money for
28:06
it really worth 10 bucks although he
28:09
issues an ordered all the Wonder Bread
28:10
people who only sell think with 10 bucks
28:12
or low what happened well what happens
28:14
is now you have the basic dire i have
28:16
price of the why act
28:17
price of the good well it’s price me
28:19
price actually means how much you’re
28:20
willing to pay what the what the
28:22
different terms of the exchange are in
28:24
other words with Crusoe and Friday let’s
28:27
say who’s so fishes and fight any hunts
28:30
and who so has had a lot of fishing he
28:33
they decide a one bowel of fish per 2
28:36
pounds of meat or whatever is pure
28:38
bargaining situation when they do that
28:40
the price is
28:42
terms were exchanged the quantity one
28:43
Machane one good and exchange is pair to
28:46
the other good and in other words two
28:49
pounds of meat for one barrel
28:50
professions
28:51
in this case the prices of one of fish
28:53
in terms of meat when we have money and
28:55
we haven’t pigs it very simplified and
28:57
everything in terms of money price so
28:59
the exchanges between the money and the
29:01
specific good so he have a situation
29:05
let’s say with Wonder Bread it means
29:07
just on ten dollars a loaf very few
29:09
people will buy it let’s say this this
29:11
is one dollar all of this axis you have
29:14
quantity again quantity purchase so I
29:18
don’t know how many loaves in one
29:19
abettor sold in the United States in New
29:21
York at any given time let’s say a
29:23
hundred thousand one hundred thousand
29:25
loaves saying New York in a week so the
29:27
quantity is 100 thousands of the prices
29:29
would not roll over
29:30
so if mr. wonder is suddenly assistant
29:32
pinned all the low very few people to
29:34
buy it the only people who buy it a very
29:36
wealthy Wonderbread freaks if David
29:38
Rockefeller loved one their beverages
29:40
was probably dubious he might shell out
29:41
a lot of money very few the rest of us
29:43
will join them the quantity suddenly
29:46
plummets this much will be purchased he
29:48
he will go bankrupt pretty early on the
29:50
other hand supposing and he’s succeeded
29:52
by another nut and opposite kind of nut
29:53
who says well I think of the Wonder
29:57
Bread is so great that every person in
29:59
the world they will for wonder but I’m
30:00
gonna sell it for a nickel a loaf
30:01
because you lose a lot of money per loaf
30:03
but he’s also crazy and the nickel of
30:06
what the people buy you hear about a
30:07
nickel okay one of those like a love you
30:09
stop buying Pepperidge Farms or tasty or
30:11
every you rush to buy one what the hell
30:12
why not like it to other I’m Nick all of
30:14
its worthless get a huge two million
30:16
loan lose so if there’s that much solute
30:21
you get something like this this is a
30:23
great law of demand the law of demand
30:25
which is the latest later the two things
30:28
one of them diminishing market is
30:29
protein to keep increasing the supply
30:30
and to is the fact that some people are
30:32
poorer than others and I can’t afford to
30:35
spend a lot of money on one specific
30:36
item you wind up with a row of the man
30:40
which is very simple and but a very
30:41
important probably the most important
30:43
single or microeconomic namely a lower
30:45
the price the more will be purchased we
30:47
don’t know how much more that’s what we
30:49
don’t know where we know but when we
30:50
more as an absolute law how much depends
30:53
on the specific identity
30:54
of a people sort of like wide punches
30:57
but we do know absolutely the lower the
31:00
price the more will be purchased this is
31:02
called a falling demand curve we also
31:04
know again conversely again there’s
31:06
always the other side of the coin the
31:08
higher the flights to less will be
31:10
purchased again saying the same thing we
31:13
don’t know the shape as a matter of fact
31:15
really before it’s a night that I guess
31:17
the man car came in about 1920 or
31:19
something like the key problem in
31:21
microeconomics the key difference
31:22
between quantity demanded and the demand
31:26
curve the demand curve of the whole
31:28
curve that a man curve is a locus of
31:31
given the price how much will be
31:34
purchase given a high price given a
31:36
medium priced low price and you map out
31:38
it depends on the subject of so you
31:40
don’t know exactly what it is because
31:42
it’s in the heads of every person but
31:44
you do know the lower other price the
31:47
more and being abandoned so this gives
31:49
you the man curve so it means if you go
31:51
down the curve the price is lower the
31:54
peak higher quantity demanded but the
31:56
curve of a whole was falling and the
31:59
demand curve as a whole is the structure
32:02
depends on how what people think a
32:03
wonderful bread basically how much
32:04
income they’ve got I’m competing
32:06
products pepperidge farm bread or tasty
32:09
bread rolls or whatever say only things
32:12
are competing with Wonder bread
32:13
this determines of the man curve in
32:15
accordance with a subjective value
32:16
scales utilities the other the people
32:18
once given this this gives you the holy
32:21
man curve and point is you must never
32:23
confuse the quantity demanded at each
32:26
point other words that at fifty cents a
32:28
loaf two hundred thousand loaves will be
32:31
the manual okay that’s the quantity
32:33
demanded of at each point you never
32:35
confuse that with the entire demand
32:37
curve which is the locus of little
32:40
quantities man at every price the never
32:41
confuse the quantity demanded any given
32:43
price whether the demand curve as a
32:45
whole and the point is that a man cover
32:47
hope cannot change the price changes are
32:50
key in other words a falling price will
32:52
not increase the demand curve ever can’t
32:55
because the man curve is defined as
32:58
response to prices can price change all
33:01
right but one thing which cannot
33:03
increase the demand curve is a falling
33:05
price the one thing which can’t lower
33:07
the automatic
33:08
the rising price because the whole shape
33:09
the demand curve has already been
33:10
incorporated and the definition of the
33:12
man curve 1920 or so on the man curve
33:15
starts until about nineteen forty
33:17
forty-five it was always the same shape
33:19
in the textbooks shade was is known in
33:22
Mathematica rectangular hyperbola in
33:24
other words the area under the curve was
33:26
the same in every point let’s say curve
33:30
of a kind of schedules on tables price
33:32
quantity purchase the price of $10 a
33:35
loaf let’s say they saw a thousand moves
33:38
pill revenue taken in by the wonder
33:40
noting that profit polo revenue taken
33:43
another retail stores price times
33:45
quantity obviously charge 10 bucks a low
33:47
fee and sell a thousand well you’re
33:49
making it has now gone that’s cool level
33:50
price times quantity key point if the
33:53
price goes out of five dollars let’s say
33:54
they sold twenty five moves and pull
33:56
regulars of the hundreds now so forth
33:58
but the way the textbooks used to
34:00
brought occurs is the area always remain
34:03
the same
34:03
kögel was always ten thousand or
34:05
wherever is adjusted in such a way that
34:07
the area going the time finally by 1943
34:11
George Stigler later my Nobel Prizes
34:14
young professor wrote a textbook called
34:16
theory of pricey so there’s no evidence
34:18
for this why they draw the curves I
34:19
would it is nonsense so we started going
34:21
in a straight line the lease doesn’t
34:23
commit you to thinking of the areas of
34:25
saying there’s all of us a straight line
34:27
either and so sometimes pick McCluskey’s
34:30
latest book on apply price theory the
34:32
sort of a maverick tightening he doing
34:34
lines is wavy
34:35
why so yeah it could be wavy if I still
34:38
prefer the straight lines provider that
34:41
your whole you had a little time is
34:42
purely convenience doesn’t mean
34:43
advancing unfortunately most economists
34:45
don’t go right in their head by the time
34:47
they get to chapter eight or something
34:48
they’re saying the thing isn’t equally
34:50
significant they start putting my
34:51
appengine C’s you’ll see you know you’re
34:52
warm go to all sorts of crazy
34:54
conclusions based on tangents eaters
34:57
don’t exist as I make no straight lines
34:58
straight line at least easier to cut
35:00
whether at least doesn’t assume you have
35:02
a theory or maybe no reason for the area
35:03
and say no reason why consumers always
35:05
spend the same amount of money
35:06
regardless of price any rate we now have
35:09
demand curves and straight lines and the
35:11
next thing is dealing with supply all
35:12
right we now having a banker which we
35:14
know is pooling we don’t know exactly
35:15
how much and we have supply what supply
35:17
supply despite the textbooks supply
35:20
is vertical supply of everything is how
35:22
much there’s around right now
35:23
I mean lows are one the better around of
35:25
the stores today they hundred thousand
35:27
so you have any given time the supply as
35:29
a fixed amount changes over time but the
35:31
point is at any given time and this the
35:34
demand curve left or the freeze-frame
35:35
situation how much could be purchased
35:37
any given price by consumers
35:39
similarly supply curve should be a fig
35:40
trees Freimuth at any given day how much
35:43
is out there the supply curve is
35:45
vertical row you’re right now no more
35:47
economics so most of people in country
35:48
you know more than the jerks are run a
35:50
subway system for exam the way most
35:52
people run utilities particularly
35:54
Subway’s railroads whatever they assume
35:58
the man curve is vertical the input for
36:00
this I don’t think about the man curve
36:01
but it personally assume man care is
36:03
work which means people essentially kick
36:06
in the by the same amount of stuff
36:07
regardless what the prices there’s no
36:09
flowing the maker so for example every
36:11
year or so they keep raising a subway
36:13
fare because they got a deficit for that
36:15
depth the government always has a
36:16
deficit come with my definition
36:18
government always screwed up it got a
36:20
deficit how do we cure definitely raise
36:22
a fair why not if you’re suffering from
36:24
certain deficit you figure out you can
36:26
balance the budget if you’re if you
36:28
raise the price by 20% and you keep the
36:31
same number of fares
36:32
then you’ll balance the budget so they
36:33
raise the price by 20% by gonne that
36:35
next year they find out it was falling
36:36
off a rise of fares
36:38
so the deficit guy never gets cured then
36:40
we start all of this why does the number
36:42
of fares go down why aren’t people
36:43
riding in some way too much they used to
36:45
gee I don’t know maybe because crummy
36:47
but we’re always coming that’s not the
36:48
end this is a fair went up so some
36:51
finding in the future it’s not gonna be
36:52
too warm are they going to raise the
36:53
fare again the five bucks whatever it is
36:56
right and they gotta find out not only
36:59
the number of rides one buzzes the total
37:01
revenue is going down that’s what I’m
37:02
gonna find that they need to get up here
37:04
somewhere and find out that taking in
37:07
less money and I did before what are
37:08
they gonna do that who knows
37:09
they’ve even got the mindset of lowering
37:11
the fare to get along people they might
37:13
even privatize it what would help this
37:15
is a sailor’s general mindset of
37:17
authority fair setting them as you can
37:19
see it makes a big difference to
37:20
businessmen what happens to total
37:22
revenue so I have to still rubbing it
37:24
becomes the key thing the business that
37:26
are extremely interested in total
37:27
revenue so say we’re now concentrating
37:29
on will get later in the term of
37:31
question becomes very important than
37:33
what happens if the Christ changes phase
37:36
raise your Asian points be here to hear
37:38
what happens to total revenue we now
37:41
come to the most important property of a
37:44
demand curve which is the reaction to
37:45
unload a man curve as you change the
37:47
price what happens to total revenue in
37:49
other words how does quantity react
37:50
compared to Vera price okay all of the
37:53
ministry margin utility is a key singer
37:55
this is it’s accomplished in history of
37:57
economic thought Adam Smith the alleged
38:00
founder of economic actually really
38:02
wasn’t but one of the founders of
38:04
economics is a separate discipline said
38:07
of the wealth of nations which was the
38:09
famous first economic classic said
38:12
there’s a value of paradox but core
38:14
value paradox and he said he couldn’t
38:16
solve it that’s a very peculiar and
38:18
history of thought but he had solved the
38:19
twenty years earlier in his lectures too
38:21
late published much later on 1900 or so
38:23
so I was when the security situation
38:25
history of thought might have been
38:28
solved by the Scholastic philosophers
38:30
his late 16th century all of a sudden he
38:32
creates this problem of the value
38:34
paradox and it goes as follows namely
38:37
why is it that things like bread and
38:40
water
38:40
let’s take bread it’s usually called
38:42
vitamin water paradox but border extra
38:45
complications any rate bread which is
38:47
the staff of life it’s very important
38:49
philosophical a demand because you need
38:52
it for life and water of course even
38:53
more and yet here bread is very
38:55
important as a high use value and yet on
38:59
the market it’s very cheap cheap on the
39:01
more therefore has a lower exchange
39:02
value one puzzling situation here’s
39:05
something which is a high use value and
39:07
a low exchange value you can probably
39:09
think of other things males are pretty
39:11
important for construction any own nails
39:13
are cheap in the other hand you have
39:15
luxury their foot brazen here and it
39:18
stays one of you might Smith calling the
39:19
Smith of the Scottish Calvinists
39:21
it wasn’t a hardcore Calvinist he did
39:22
across soft core Calvin up because we
39:24
hate it luxury anyway diamonds or a mere
39:27
flipper easy he put they have no value
39:29
no use value a little extreme most of us
39:33
say well I have yeah philosophically
39:35
does not have a very high value saying
39:36
well usse mad you darlings
39:39
Robinson Crusoe no doesn’t wanna land I
39:41
go for diamonds is the first priority
39:43
I’m basically
39:44
and yet look at diamonds is extremely
39:47
expensive uh lamarka they have a high
39:48
exchange value
39:49
it’s a restraint thing I can’t solve it
39:52
and Ricardo has disciple to the same
39:55
thing or more than capitalist this is a
39:57
value of paradox therefore we can’t say
39:59
anything about consumers value to
40:02
consumers the whole utility analysis I
40:04
can’t say anything about it because
40:05
they’re stuck in this thing I have to
40:06
deal with the entrepreneurs and business
40:08
and labor and robots are thought and
40:10
consumer analysis drops out of the
40:12
picture except in France where they
40:13
never cuff of us but Britain has a
40:15
dominant economic doctrine of 19th
40:18
centuries that we were unfortunately
40:20
took a hundred years to get out of this
40:22
who’s solving value paradox from this
40:25
ideas he comes the left-wing position
40:27
like Veblen and these other characters
40:30
in late 19th century America later
40:31
saying wow capitalism market economy
40:34
presses production for profit and not
40:37
for use they produce things like
40:38
diamonds which are for profit on a high
40:40
value they don’t produce bread and water
40:42
or something which you’re a low value
40:44
use value this economy that means
40:46
production for profit or production for
40:48
you so kind of very important this for
40:49
your left-wing thought by this time you
40:51
have a tool in your possession to
40:52
realize the fallacy in the faux nonsense
40:54
basic fallacies this people do not
40:56
choose on philosophic value we don’t sit
41:00
around the siding and one big vote let’s
41:03
go back to the model of a grand old I
41:04
fiction movies or 50s some space
41:07
character interfered blocked in the old
41:09
television sets all of a sudden we’re
41:11
out or challenging awesome by is
41:12
speaking to you from the planet you or
41:14
something any hands Earthlings up so the
41:17
Earthlings listen conclude peace now or
41:19
die in six days some dietary character
41:22
not comes to the earthing because that’s
41:23
us with a choice from now on you have a
41:26
world parliamentary decision you have a
41:28
choice of losing forevermore from now
41:30
honestly end of eternity either all the
41:32
bread of oil or diamonds in the world
41:33
and that’s the choice we’re human races
41:35
Facebook well given that choice I’m sure
41:37
we choose bread but on diamonds and the
41:40
space people would normally are will go
41:42
off of the diamonds the point is in real
41:44
life announced faces this time of a
41:45
choice not place with all encompassing
41:47
class choice we’re faced with unit
41:49
choices marginal choice the whole point
41:51
of the unit when somebody goes to buy
41:54
something and then I faces a situation
41:56
of he’s all the brother
41:58
roll versus all the diamonds now you’re
41:59
faced with things should I buy this loaf
42:01
of bread or side by this diamond with 12
42:03
carats or something is that in that
42:05
situation the marginal unit becomes
42:06
extremely report and the lure
42:07
diminishing marginal utility becomes
42:09
with sizes if you only had one loaf of
42:12
bread in the world see what we willing
42:13
to spend hundreds of thousand dollars
42:15
with women fortunately we have a lot of
42:16
breads of each unit as we deal in units
42:20
in the real world each unit each pound
42:23
of bread is very has very cheap because
42:25
a low marginal value like Crusoe with
42:28
twenty logs instead of one the Penn
42:30
College would the supply is we have a
42:32
huge supply fortunately a huge supply of
42:35
bread therefore it’s cheap units are
42:38
cheap in the other hand with diamonds
42:39
supplies very very rare limited scarce
42:42
that’s true we have a government cartel
42:45
in an awfully which makes a skier sir
42:47
I’ll get that down we get the monopoly
42:48
those gears so we have then even though
42:51
diamonds the first unit is much lower
42:54
they lease then the first unit of breath
42:57
not that many units around as the supply
42:59
limited so we have a higher price for
43:02
diamonds on the market in other words a
43:04
higher valuation but consumers for each
43:06
unit for each carat this is the you know
43:08
the you know the wage of diamond school
43:10
inherit the value placed by people in
43:12
each tower is much higher value piece
43:13
that you slope of bread there’s nothing
43:14
wrong with that up there’s nothing
43:15
paradoxical nothing home full of
43:17
laughing there’s nothing unnatural about
43:19
it perfectly legitimate once you see
43:21
what the whole picture is once you see
43:22
Li interpenetration between supply and
43:25
valuation so once you realize about the
43:28
margin this whole thing clears up that
43:30
saw the value of ours have took until
43:32
Italy Austrians another economist 1871
43:35
the margin utility theorists around 1870
43:39
want to solve this paradox
43:41
before margin utility Gould for a
43:44
hundred years economics have been misled
43:46
by Adam Smith and others Kohler sac but
43:48
they couldn’t analyze consumers behavior
43:50
can analyze consumer actions because
43:51
they couldn’t understand the value of
43:53
paradox and love themselves wide open
43:55
for left this to say a lot of G’s a
43:56
terrible thing and there’s no conflict
43:58
between production for proper production
44:00
for use or proper was what’s the most
44:02
useful consumer most valuable and
44:04
Amanda’s highest anyway that’s solve the
44:06
value of paradox any exchange that takes
44:09
place in the market
44:11
only exchange because it’s more valuable
44:12
for they prefer what they’re getting at
44:14
what they give up they prefer the
44:16
marginal units in other words you work
44:18
you’ve change your labor service of 40
44:20
hours a week or ever for some money or
44:22
change money for loaves of bread or
44:24
serios or whatever you’re doing that
44:26
because you prefer the value you’re
44:28
getting for what for the value of giving
44:30
up an exchange so each step of the way
44:32
each kind of exchange is made of the
44:33
marginal millions of changes benefit
44:37
both parties to the exchange what we
44:38
have is a latticework of two person
44:40
exchanges as always for every unit
44:42
exchange there’s a two people or two
44:45
groups and two commodities including two
44:48
goods and services each unit exchange
44:50
has two people and two commodities and
44:53
the money economy money is always one
44:55
part of the equation here money is
44:58
exchanged for the rubber plane so that
44:59
you’re graduating work for IBM you’re
45:02
exchanging your labor service for salary
45:04
for money so that’s again a situation
45:07
with you and IBM you know IBM is not a
45:09
person that acts as a unit the situation
45:12
to each step of the way and it’s
45:13
latticework of exchanges is of both
45:16
parties benefit otherwise they wouldn’t
45:18
make the exchange of do something else
45:19
they go home they make some other
45:21
exchange that keep their money they go
45:24
whatever okay we now get to we get to
45:26
the most important property of a man
45:28
curve the only property which really is
45:30
important in our fact remember that the
45:33
banker is falling so we really know
45:35
about it so you have on a y-axis you
45:37
have price and the x-axis you have
45:39
quantity and the man curve tells you
45:42
it’s really demand schedule to geometric
45:44
representation of the man’s schedule
45:46
tells you at this price how much will be
45:48
boy price of wonder better ten bucks a
45:50
loaf this once you leave border prices
45:53
file all of this much cheaper the price
45:56
the moral will be purchased so you have
45:59
a demand curve which is sloping football
46:01
falling to man car demand curve slopes
46:03
downward to the right now know if it’s
46:05
linear you don’t know if it’s steep or
46:07
shallow or flat only hours of its
46:09
falling the important property of the
46:10
demand curve is how much if this is like
46:13
a freeze frame situation telling you
46:16
what’s in the mind of consumers course
46:17
you don’t know that a man car who knows
46:18
they don’t really know we know that it’s
46:20
falling the important property demand
46:22
curve is if you change the price let’s
46:24
say
46:24
you cut the price from here to here how
46:26
much will the quantity in Greece or at
46:28
least in what direction we know what
46:30
will increase we don’t know about how
46:32
much if it increases just a little bit
46:33
you have a steep curve here it can
46:37
either do that or can increase a lot we
46:40
have a much flatter curve given the same
46:43
point this property the man curve is
46:46
called elasticity
46:47
once again it’s borrowing the
46:49
prestigious physics where the question
46:51
of example is you put a certain
46:53
different weights spraying how much will
46:55
a spring
46:56
give there are two different kinds of
46:59
definitions for you also see one commish
47:00
is a textbook definition there’s nothing
47:02
wrong whether they just kind of
47:03
irrelevant the more elastic is how much
47:06
more give there is no is how much the
47:09
quantity will increase it’s on the price
47:10
for the reason why it’s Darrell of us
47:12
nobody knows anyway then it’s also the
47:14
really important thing is call it a
47:16
really important thing for the
47:17
businessman for the industry is will
47:20
total revenue go up or down so they
47:21
really care about if I cut the price
47:23
what’s going to happen to my total
47:24
revenue that’s what I want to focus on
47:26
here now the total revenue business
47:29
income net income is total revenue minus
47:32
total cost this is a very simple figure
47:35
out way of looking at but basically it
47:36
is how much money do you take in a year
47:38
over the transom remember a cash
47:41
register or whatever how much money did
47:42
pay out if you take in under thousand a
47:45
year you pay out eighty thousand total
47:49
course is your net profit of honey found
47:51
if on the other hand you told revenue
47:55
sixty thousand your pay I 80 thousand
47:56
you’re a pretty poor shape suffer net
47:58
losses of twenty thousand so therefore
48:01
total revenue of any firm or any person
48:04
men are equals the price of anything
48:06
times the quantity Sol let’s take our
48:09
Wonder Bread example the curve is based
48:11
on a schedule and let’s say the price is
48:12
ten bucks a loaf you have very few
48:14
loaves so say a thousand thousand very
48:18
wealthy Wonder Bread freaks but ten
48:20
bucks all of you so a thousand those you
48:21
get $10,000 over very simple concept
48:24
simple but important if the price is
48:26
ones all a might be selling hundred
48:28
thousand loaves
48:29
so then your tow Ready’s $100,000 the
48:32
price is a nickel a loaf might be
48:34
selling 500,000
48:36
it looks that I found more instead of it
48:39
anyway that gives you an idea you take
48:43
the price per unit multiply the number
48:46
units so when you get your total revenue
48:47
what we’re interested in here is what
48:49
happens to total revenue so in other
48:52
words the key thing I’m munching on here
48:53
is the direction what happens is total
48:55
revenue or the change in price if when
48:57
you cut the price to quantity increases
48:59
like bigger greater proportion you have
49:01
an increase in total revenue that’s an
49:03
elastic demand curve raise the price
49:04
then you have a full and total revenue
49:07
it’s not easier forecast in advance
49:09
whether the maker will beat your goal
49:10
change the course of the zone and can be
49:12
different for different things so that’s
49:14
an elastic demand curve the other hand
49:16
if you have an egg curve which is
49:17
relatively feet then you have the new
49:21
total revenue smaller other words the
49:24
increase in quantities will not enough
49:26
to offset the drop in price so revolt or
49:29
total revenue so in this situation for a
49:32
full and Christ leads to a pool and
49:36
total revenue we’re looking at again the
49:38
other way around if you raise the price
49:40
from here to here you got an increase in
49:41
total rubbing it this is something it
49:43
isn’t very interested and I don’t care
49:45
that much about the percentage should
49:47
matter a whole lot of formula they care
49:49
about what happens to the dam total
49:50
revenues this is in a real world
49:52
businessmen don’t know that man-mana is
49:54
not listed on the book for them they
49:56
kind of find out it’s not easy to find
49:58
out part of the jaw of intrapreneur
50:00
businessman try to figure out what’s
50:01
going on
50:02
this situation is called an inelastic
50:05
demand curve in elastic so in other
50:07
words we’re attending up here new
50:08
definition of elastic and inelastic
50:11
instead of concentrating and percentages
50:13
from a constant direction of total
50:15
revenue if the total revenue increases
50:16
of the full the full and price inelastic
50:18
demand curve if it drops to the forum
50:20
price you have an elastic demand curve
50:22
and vice versa so what can we say about
50:24
when things will be elastic or inelastic
50:26
well one thing we can say that other
50:30
things being equal a larger range of
50:32
choice will be greater elasticity in
50:34
other words let’s say this is a back
50:36
wall Wonderbread example here’s the
50:38
price of one who brought Sam the
50:40
buckle over another saying this
50:42
wonder she was a huge increase in price
50:46
today I was going to fall tremendously
50:48
because all the other breads were mainly
50:50
the same price rolled bread everything
50:52
is up buckle low for so he’s raising his
50:54
price of $5 $10 elope him he’s a
50:56
tremendous falling on means the man
50:58
curve is very elastic for Wonder Bread
51:01
so that’s one of the reason he’s not
51:03
going to do it as if he’s sane on the
51:06
other hand if all the breads go up
51:07
together that’s a different story there
51:10
will be a falling off but people won’t
51:12
be able to shift out of Wonder Bread
51:13
into preparation formula will be going
51:15
up so in that situation be much steeper
51:18
it could still be elastic so the less
51:20
elastic preesh Givens firm we are we
51:23
shipping brand same way on the way down
51:25
so one thing we could conclude from this
51:26
is the demand curve in all cases the
51:29
growth of how elastic demand curve is
51:31
the main curve for the firm any given
51:34
firm is more elastic so the main curve
51:37
for the industry as a whole
51:39
unless of course there’s only one from
51:41
the industry which case is the same
51:42
thing when you have a big gap saying the
51:46
man curve reach firm is quite elastic
51:47
and the matter of Industry the holes
51:49
right is inelastic it sets up a
51:51
temptation or cartel agreement among the
51:54
firms because then get together and
51:56
agree to cut production raise price the
51:59
old benefit all the firm’s will benefit
52:01
Kernighan let’s say they raise price by
52:03
20% their production gets cut by 10% I
52:05
guess they pick up more total revenue
52:07
but it’s only if each firm will keep the
52:09
agreement the only time a cartel will
52:11
last for any length of time is when a
52:13
government steps and enforces that
52:15
prevents new competition from coming in
52:17
prevents anybody from breaking the
52:19
agreement and this is what’s happening
52:20
Europe a lot of elasticity is a major
52:25
property of demand curve is that you
52:27
either elastic or inelastic which means
52:29
you have a situation where total revenue
52:32
either Falls or increases and changes in
52:35
price index now is obviously extremely
52:36
important businessmen trying to figure
52:38
out what’s going to happen in the real
52:40
life there are no given the man curves
52:42
this is not trying to find out what will
52:44
happen they raised the price or lower
52:45
the price that’s a trial error kind of
52:47
procedure much much of a hunch and based
52:50
on their intuitive insight of the market
52:52
which is court based on knowledge but it
52:54
based on a sort of No
52:56
economists don’t have and we’re not in
52:58
the fish market of a computer market
53:00
over it each market is different as
53:02
different people and different all sorts
53:03
of stuff going on dynamics the only
53:05
people involved and I can figure out

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