Introduction to Microeconomics – 14 of 14 – Interest Rates and Course Review – Murray N Rothbard

INTRODUCTION TO MICROECONOMICS
Presented by Murray N. Rothbard in 1986 at New York Polytechnic University. Recorded by Hans-Hermann Hoppe.

14. Intro to Micro: Interest Rates and Course Review

The time market determines the pure rate of interest. Price per unit of time may be wages or rent. The interest income will be earned by the capitalist who has assumed the task of advancing present money. The capitalist then waits for five years until the product matures before recouping his money.

Part 14 of 14. Presented in 1986 at New York Polytechnic University.

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

Sourced from: https://mises.org/library/introduction-microeconomics

Source: Introduction to Microeconomics – 14 of 14 Interest Rates and Course Review – Murray N Rothbard – YouTube

http://www.readrothbard.com/introduction-to-microeconomics-14-of-14-interest-rates-and-course-review-murray-n-rothbard

TRANSCRIPT

00:00
first I want to finish up with what we
00:01
have to cover and the second hour we’ll
00:03
review the term and answer questions and
00:05
what all the rest of it so you having
00:14
cover the labor market supply of latent
00:16
labor population unions and sceptre on
00:19
the price and wage rates we next went
00:21
out to wrap up to think mile interest
00:23
rate and along whether the difference
00:26
between unit prices and the price of the
00:28
whole product when we talked about wage
00:31
rates we’ve been talking about or prices
00:33
of the factors of production we’ve been
00:41
talking about house the demand is
00:42
determined by the marginal revenue
00:45
product which is marginal physical
00:47
product I’m of the marginal revenue ok
00:49
so so we want to do an ass to focus on
00:54
the time the time dimension in other
00:58
word revenue physical product means how
01:00
much product is produced by one extra
01:03
worker or whatever 11 more acre glance
01:06
in a certain time period the support
01:08
means certain as many implicitly and
01:10
puts it all along that’s how much
01:11
product is produced in a given time
01:13
period so the wage rate or the price of
01:16
the land or a price of capital goods
01:18
will be that price given a certain
01:22
certain time period so this means the
01:26
price per time period in the words for
01:30
workers for pro-labor its wages either
01:34
per hour per month or per year ok
01:39
because its product for months or per
01:41
year we’re dealing with in other words
01:44
when we’ve been talking about prices
01:45
especially prices of factors of
01:46
production labor land and capital we
01:49
talk about the price per unit time so
01:52
it’s the price per unit time because
01:57
it’s also a production for unit on
01:58
production takes place over a certain
01:59
time period so when you talk about a
02:02
product you know you have one labor to a
02:04
certain amount of capital goods and land
02:06
and it produces 20 more bushes of weeds
02:09
plenty more bushels of wheat in what
02:10
time Tory well whatever the time period
02:11
is a month or a year whatever
02:13
so therefore when I when I got to focus
02:15
on the time period involved here so a
02:19
price per unit time means exactly that
02:21
wages per hour and for physical products
02:25
that means rent other words the rent per
02:28
the rent is a price per unit time so for
02:33
example but we’ve really been talking
02:35
about it till now is that workers are
02:37
hired that pay per unit time or when you
02:40
when you when you buy an entrepreneur
02:43
buys capital equipment they are planned
02:45
you need to buy it or rent it in other
02:48
words if you’re a businessman G either
02:50
rent your building and rent your land or
02:52
actual rent machines or plans a lot of
02:54
renting going on and business largely
02:57
for tax purposes get out of income tax
02:59
but there’s a lot of rent so you can
03:01
either buy something or rent it these
03:03
are the choices which you have any any
03:05
any business but we’ve been talking
03:07
about up till now and we talk about
03:08
price of factors of production we’ve
03:10
really been talking about the price per
03:11
unit time wages per hour and rent the
03:15
lowest price per unit let’s say rental
03:18
price per per per month or per year when
03:23
you rent a house as a consumer or
03:25
businessman you’re renting it for a year
03:27
or land per year for a month or whatever
03:30
you’re running it for a time period so
03:33
the rental price of anything is the
03:34
price per unit time so in a sense what
03:38
we’re dealing with what we’ve been
03:40
talking about is the price of
03:41
termination marginal productivity price
03:44
determination for rental prices the
03:45
price per month or per year of land or
03:49
capital goods or labor because what a
03:51
wage really is it’s really a rent of
03:53
Labor are the words either but you can’t
03:56
buy a labor I accept on their slavery in
03:58
pre in the free system you can only rent
03:59
a person you can’t buy it by him by his
04:02
whole product so to speak so you’re
04:04
rentin / from the labor himself you rent
04:06
has services per unit time so wage is
04:09
also a rent I was I’m dealing with rent
04:11
now not as a not as a particular just
04:15
for land I rented for anything when you
04:17
rent something out a means of price per
04:19
unit time when you write a TV you need
04:20
to buy a TV set or rented you need to
04:22
either buy a car rent it or lease it
04:24
it’s all the same thing in other words
04:25
when you when you rent a car
04:27
for a year for a day or whatever it is
04:28
using its services per unit per unit
04:31
time and you buy the thing as an
04:34
outright you buy the house of by the car
04:36
you buying all of your buying all the
04:38
future services of the thing can give
04:39
you see buying the whole product all the
04:41
whole thing whereas you buy it per per
04:46
hour per month or whatever you’re
04:47
renting it so we’re using the term rent
04:49
not the way the textbooks use is usually
04:51
using it as a the common sense phrase as
04:54
a price per unit time of anything many
04:56
have any product they can give you a
04:58
service yet you buying the services per
05:00
unit you can either rent a TV set or buy
05:04
it you can either edit you can even rent
05:06
tuxedos and things like that so you’re
05:09
the consumer or the producer is always
05:11
faced with a choice of rental and we’re
05:13
buying the unit’s service or buying the
05:14
whole thing and enjoying all the unit
05:15
services old future unit services so
05:20
rent is a really generalized concept i
05:22
mean the price of any price of any unit
05:24
service so we’re saying here is that the
05:27
come in the price of the factors of
05:29
production the rental price of anything
05:32
the Reynold price is equal to the
05:34
marginal revenue product well the demand
05:36
for the the demand for the labor service
05:39
will be equal to a little meal the rent
05:42
to be equal to marginal revenue product
05:44
so the rental price are we looking at it
05:49
now under slavery one of the interesting
05:51
things about slavery is that the good
05:53
illustrates the general concept for
05:55
labor as well as for anything else under
05:57
slavery slaves are often rent it as well
05:59
it’s bought in other words something
06:01
wants to see your your run your
06:02
operating a plan or some plantation
06:05
whatever seasonally the the master open
06:08
instead of buying a slave would rent the
06:10
slaves out from other masters in that
06:12
case the other words you need a bias
06:15
labor rent them so the again you have a
06:17
situation with a some kind of
06:19
relationship between a rent and a
06:20
purchase price the rent the slave rent
06:23
in other words under slavery heaven if
06:27
demand for labor the man curve of the
06:31
marginal revenue product is the wage
06:33
rate on a free and a free system a free
06:38
labor system the
06:41
the the market wage will be equal to the
06:45
marginal revenue product and their
06:47
intersection of margin of your
06:48
productivity of the demand curve and
06:50
supply curve under slavery it’s still
06:52
the same thing every slave of the
06:53
marginal revenue probably usually lower
06:54
than other free system there’s not much
06:56
incentive to work or to be you know to
06:58
be creative or anything like that but
07:00
under a slave system the slave master
07:04
appropriates the slave master again say
07:07
the slave master rents out the slave the
07:10
rent is equal to marginal revenue
07:11
product sup here but the slave master
07:15
will only pays a slave the amount read
07:16
enough to keep a safe functioning you
07:18
know keep them eating and reproducing
07:20
and the master gets the appropriate your
07:23
ex pro creates the difference the
07:25
surplus value so to speak goes to the
07:27
matte velum slave master so this is a
07:30
subsistence level the Marxian and the
07:34
Marxist analysis of wages are determined
07:37
by the assistant level and a capitalist
07:39
expropriate everything up to larger of
07:41
your product basically only holds true
07:43
for slavery where they indeed the master
07:45
can expert big master you have the nuns
07:47
to do it so the price of the rental
07:53
price of a slave of the wage rates I
07:54
whichever you want to call it it’s still
07:55
determined by the marginal revenue
07:57
product so then the question is so we
08:01
now have the terminal the rental prices
08:03
for everything other words for land
08:05
labor and capital then the question is
08:06
what determines the price of the whole
08:09
thing if you buy it either a slave under
08:10
slavery or capital goods or equipment or
08:13
land or whatever you’re ever you’re
08:14
purchasing is there any relationship
08:15
between the rental price and the price
08:17
of the whole thing so to speak that’s
08:19
the the next step two so in other words
08:23
what we’ve been talking about all this
08:25
time is really the rental price the
08:26
price per unit the wage rate the rental
08:29
the land rent and the capital price per
08:31
plant the rental price of the capital
08:33
equipment so now we have to determine is
08:35
what what does the relationship between
08:37
the price of the whole thing in the
08:38
rental price of anything whether it’s a
08:40
TV set or a house or a labor under
08:45
slavery or capital go to a land or
08:46
anything else all these factors of
08:48
production can be purchased as a whole
08:51
ok so let’s look at this
08:54
I call the price of the whole the whole
08:55
thing the price of the whole factor when
09:02
you buy something when you buy a capital
09:04
equipment when you buy a land or you buy
09:06
a TV set or whatever but you’re doing is
09:09
or buy a house you’re what you’re buying
09:11
the right to appropriate all the future
09:14
services the future burn unit product or
09:17
a future rental product for the state of
09:19
the item so if they if for example
09:23
machine will not have a 10-year like
09:25
let’s say and if the revenue product of
09:31
the machine is say ten thousand dollars
09:33
a year in other words you use it you get
09:35
a marginal revenue product ten thousand
09:36
a year you can rinse it out you’ll pay
09:39
10,000 all year for it or if you buy it
09:41
and you rent it out somebody else he
09:44
will pay you ten thousand dollars a year
09:45
for so we’re just assuming now the
09:47
regular price of this machine okay
09:51
machine which is equal to the marginal
09:56
revenue product will be 10,000 per year
09:59
so let’s say michelle’s assume for
10:04
mental machine you know buys out of 10
10:05
years I mean usually these things are
10:07
much more variable now let’s assume you
10:08
use of a ten years in the collapses like
10:09
a one-horse Shay all right because it
10:12
means if you buy it if you buy this
10:18
machine and then rent it out or then you
10:20
if you use it in production you you will
10:22
earn from it ten thousand dollars per
10:25
year for ten years in your life so the
10:29
first approximation we can say the price
10:31
of the whole thing will be the sum of
10:33
the summation price of the machine as a
10:35
whole will be the sum of the rental
10:45
prices of some of the margin of your
10:46
products over the over the life of the
10:49
machine so it should be you think would
10:51
be a hundred thousand dollars because
10:53
you’re getting a hundred thousand
10:54
dollars worth of equipment so that’s
10:59
sort of the initial first approximation
11:01
you’re getting you’re getting the or the
11:03
sum of the rents some of the return
11:07
we have a rental value of 10,000 a year
11:09
for this machine by the Machine gap n
11:11
year ten years worth ten years like you
11:14
will earn either by producing and using
11:16
a production by renting it out of
11:17
somebody else to use in production
11:18
you’ll earn ten thousand all of the year
11:20
do you think there could be a hundred
11:22
thousand dollars it half of course it
11:24
won’t however it could be a lot less
11:25
than that because and the reason for
11:29
that is the basic pack of time
11:31
preference in other words that should
11:35
talk about the beginning of a class i
11:36
haven’t mentioned much sense but the
11:38
basic point is that everybody prefers
11:41
income now to income in the future to
11:43
the prospect and they come in the future
11:44
in other words if you’re presented with
11:46
the idea i’ll give you a million dollars
11:48
now or anything give you one hundred
11:49
dollars now it’s a or awesome I’ll give
11:51
you a hundred all 10 years from now
11:52
aside from price changes it seemed let’s
11:54
forget about prices changing you’re
11:57
obviously prefer getting a hundred
11:58
dollars now if you want to save it save
12:00
some of it you want to control it your
12:02
self a kind of having me control it
12:03
everybody prefers getting money or
12:05
anything else now to waiting for it
12:07
leica getting it two years from now ten
12:09
years now hundred years from now a long
12:11
you have to wait the less you like it so
12:14
the basic time preference everybody
12:15
prefers present goods other words
12:19
getting good now getting money now or
12:22
product now to future goods which means
12:26
the present prospect of getting money in
12:28
the future notice what you’re not sent
12:30
we’re not saying that you prefer the to
12:32
get a hundred dollars now than getting a
12:34
technician now he’s saying is we
12:36
referred one hundred dollars out of the
12:37
current prospect of getting hundred all
12:39
of 10 years from now the dif different
12:41
point in other words here we are in 1986
12:44
for confronted would touch with a short
12:45
either we get a hundred dollars right
12:47
now or you’ll have to wait for it for 10
12:49
years what we’re saying is we prefer
12:50
right now it gets 100 bucks now that’s a
12:53
weight then again i owe you for a
12:55
hundred boxes or but 10 years from now
12:57
that’s the point so since so we in other
13:00
words what we have all over the market
13:02
economy have a time market which
13:04
permeates the entire system
13:06
unfortunately most micro economic
13:08
doesn’t feel much less it just feels
13:09
very peripheral e is a prime market and
13:14
the market present goods in future go
13:16
all over the place and part of the
13:19
market is the most
13:21
be as part of the market for the loan
13:22
mortgage I loan you one hundred dollars
13:25
a thousand dollars and get an IOU the
13:28
future so here we have a home market
13:34
though it was a time market is a vast
13:36
market where present and future goes are
13:38
being chained to each other and exchange
13:41
a present for future future for example
13:47
the credit market isn’t either say an
13:48
obvious example that’s a loan market
13:51
let’s say I I lend a thousand dollars to
13:54
somebody here and what happens now is
13:57
the creditor turns over a thousand
14:02
dollars which the debtor can use right
14:03
now so that’s a the credit here is
14:06
better so the better what happens is the
14:10
creditor this path is also can be used
14:12
right away as a present good return for
14:15
that the other person gives me an IOU
14:18
saying i will pay you a certain amount
14:19
next to x male SI so again i owe you for
14:24
a future good which is a perm 1987 now
14:32
what I’m saying it’s as president goods
14:34
are always worth more the future good
14:35
both for the credit ran for the Zetas
14:37
everybody in the country at different
14:38
rates of preference some people are have
14:40
a high time for what son was a high time
14:42
where they want money right away though
14:43
they might pick expense don’t care about
14:45
that much about the future they’re
14:47
willing to pay up a lot in the future to
14:49
get money now others have a much lower
14:50
time preference but everybody’s got a
14:52
positive time preference everybody
14:54
prefers and some extent present the
14:56
future goods and the time Marco then
14:58
resolve this 2021 price system like
15:01
anything else were some people are high
15:03
time for others have a load time but and
15:05
they change it to a whole interest rates
15:06
are more become more or less the same
15:08
these tend to become wall at the same
15:10
and so let’s say eight percent so the
15:12
means of the an iu for future good so
15:14
that the I’m exchanging it as always now
15:17
for an iou for a thousand and eighty so
15:19
that’s eight percent in other words in
15:22
that case the price of time so to speak
15:24
is eight percent with us the time rate
15:28
per annum of course per year when
15:33
interest rates are lower they were in
15:34
the old days
15:35
for various reasons if interest rates 5%
15:38
the exchanges 4,000 40 you for a
15:40
thousand fifty so that’s a and in the
15:45
days when it was up to twenty percent
15:46
for a year or so with up about twenty
15:48
percent nearly in the early 70s then it
15:51
would have been twelve hundred dollars
15:53
our ten percent 1100 are so depending on
15:57
what the interest rate is this is more
15:58
or less the Tennessee of what the climb
16:00
rate will be and that is the time rate
16:03
is the interest rate is the basic
16:04
interest rate obviously there are other
16:06
factors going in just a basic or pure or
16:09
whether you want to call it call the
16:10
basic interest rate so in other words
16:14
interest is the price of time that’s the
16:16
it’s the time market it’s exchanging
16:18
present goods of future goods so you
16:20
borrow from American Express or whatever
16:22
it is a lot get a mortgage at you’re
16:24
getting money now in exchange for which
16:26
you’re paying the accreditor and premium
16:30
for you know you paying back in the
16:32
future so it’s the present future market
16:35
so we go to a restaurant you buy a TV
16:39
set or something use a credit card what
16:41
happens there is American Express or
16:42
masters whatever it is pays the guy
16:45
right now more or less right now pays
16:47
the restaurant right plays the
16:49
restaurant owner or the TV owner the
16:52
store right now hey Shane sure which you
16:54
pay the american express whatever a
16:56
twenty percent of ten percent of the
16:58
rated until you pay it off and an
17:01
interest return of annual return with a
17:03
20-percent or 15 oh that of course also
17:06
fluctuates in according to the basic
17:07
interest rates so in other words the
17:10
basic interest rate is the time rate and
17:12
and all throughout the market you have
17:16
this kind of time market going on one of
17:17
which is the credit market most obvious
17:20
one but also when a when a business man
17:22
hires labor or buys machines what he’s
17:26
doing is he’s he’s getting a future
17:28
return no was he saying okay arrest the
17:32
machine or whatever you saying / or pay
17:35
you now and return for which we’re going
17:36
to get the I’m going to produce the
17:38
product and some what’s on them and sell
17:39
it a year from now or two years from now
17:41
and get a certain return from it the
17:44
worker and the landlord at separate
17:45
cetera don’t get the full martyr of you
17:47
part they get them
17:47
upon actually discounted on the rate of
17:49
interest in other words they’re getting
17:51
a the Nordic because if you didn’t have
17:54
a capital of doing this if everybody
17:55
everybody have to work on the equipment
17:57
they have to work five years on
17:58
something a computer firm whatever I be
18:00
in as finally they sell the problem you
18:02
get paid so you have to wait two years
18:04
five years depending on ten years
18:06
depending on what the product was for
18:08
any payment came in most of us can’t
18:09
afford to wait 10 years for a paycheck
18:11
so the capitalist saves the money i pays
18:15
out the money now as a present good to
18:17
workers landlords and whatever machine
18:21
people felt more materials and he then
18:23
waits then works on the product directs
18:26
the working of the product and gets the
18:27
guess the return in the future and
18:29
return for this waiting or intern for
18:31
the time preference he gets the eight
18:33
percent of six percent of where the
18:34
interest charge is so interest is a
18:37
general feature production part of
18:40
production system long-run interest
18:42
which exists even in equilibrium and all
18:44
the profits and losses are washed out
18:46
even in the long final equilibrium
18:47
because as a return for hanging out
18:50
money now waiting for it late until the
18:52
future and in other words part of the
18:56
discount of future goes against present
18:58
goods in the case of the price of the
19:02
whole thing in rental charge what you’ve
19:04
got is when you buy a machine expect to
19:08
get 10,000 all of the year from her rent
19:10
for 10 years it’s true you’ll get it but
19:12
the price of ten thousands of price of a
19:15
hundred-thousand-dollar special with 10
19:16
years now not hundred thousand dollars
19:18
we have to wait for it it’s it’s ten
19:20
thousand dollars discounted each year by
19:22
whatever the interest rate is so in
19:24
other words if the interest rate is ten
19:26
percent but make it simple you’re buying
19:30
a machine which will get which everybody
19:32
agrees let’s say we give you ten
19:33
thousands on rental return or
19:35
productivity per year for the first year
19:39
let’s say that relic for the first year
19:41
let’s say you get the money right now
19:43
for getting it for the first you pay ten
19:45
thousand dollars worth ten thousand
19:47
dollars the next year it’s only worth
19:48
ten percent of that so you deduct a
19:50
thousand dollars that makes it nine
19:52
thousand and they needed up another ten
19:56
percent or make any one hundred and on
19:58
into the future so instead of instead of
20:00
adding up the tenth
20:01
a hundred thousand add up to something
20:03
whatever it could be three thousand
20:04
something like that and what you add up
20:05
cuz you’re getting pepper sent a year
20:08
interest so that’s 53,000 when you buy
20:13
53,000 you owe you use it for 10 years
20:15
you get your temper senators per year
20:16
over the 10 years so in other words the
20:20
the Capitol the fights of a whole
20:23
product on the market whether it’s a
20:26
labor under slavery or labor under
20:28
slavery or whether it’s a capital
20:29
machine or a piece of land the price of
20:32
the whole product will tend to be not
20:37
the sum of future rents which is what we
20:40
first said some of fermented be the sum
20:43
of future rent this counter by the rate
20:45
of interest okay so it’s with this
20:51
Canada son discounted on this kind of
20:53
future events we multiply I times they
20:59
each each rental return of the words if
21:01
if rental return per year is capital R
21:04
instead of over the first approximation
21:07
would have been a sum of some of our
21:10
have found on the air for 10 years now
21:12
we’re saying if HR is this kind of by
21:14
right of interest you multiply by the
21:15
right of interest they get the actual
21:17
amount we call e we call the price of
21:22
the whole product as an awkward term
21:25
obviously so the terminal using capital
21:27
value so that in other words if you buy
21:33
a house so if you buy a machine in your
21:35
land and rent it out the price of the
21:37
whole thing is to buy to call the
21:39
capital value is that thought about good
21:41
a capital value is the sum of future
21:44
right this kind of our rate of interest
21:45
there are / I so for the formula famous
21:54
form of sequel Campbell are over Rises
21:57
this only works this way it’s the only
22:00
this something ever permanent good if
22:01
you have a pen year life it gets more
22:03
complicated but basically for example
22:06
land is considered a permanent good you
22:08
buy land if it’s going to be used
22:10
forever also say bye Lana put the 50
22:13
street and broadway
22:15
buying a land for every getting the use
22:16
of it for all time so to speak if this
22:18
if the returns weren’t disc and the
22:21
rents wearing discounted by the rate of
22:23
interest you’d never be able to buy that
22:24
language the lamp fights will be
22:25
infinite in other words beginning let’s
22:27
say one hundred thousand dollars a year
22:29
say for valuable land forever so it can
22:32
ever sum it up you can never land would
22:34
be infinitely high in price the fact of
22:37
land is not necessarily higher price
22:38
which obviously isn’t since people
22:39
pretty high here but you still gonna buy
22:41
it it means it is this kind of by the
22:43
rate of interest so the fact you might
22:45
get a hundred thousand dollars from a
22:46
two hundred years from out of Amina
22:47
howlin velocity is almost negligible the
22:50
only things are incorporated by being
22:51
this cannon until the interest return so
22:54
this is particularly this formula stick
22:56
early accurate of land because
22:58
considered have infinite light he
23:00
doesn’t it’s not limited but this is a
23:02
basic proportions and demonstrates he is
23:04
as the capital value something directly
23:06
proportional the average productivity or
23:09
the rent rental return and indirect
23:11
University proportionally rate of
23:12
interest in other words if the rate of
23:16
interest is let’s say its temper census
23:18
every year it’s worth it’s a kind of
23:21
some 10,000 plus 9005 8100 etcetera
23:24
etcetera the yield final lump sum that’s
23:27
worth right now in the market well the
23:29
rate of interest goes up to twenty
23:30
percent of the zombie season to be worth
23:31
only 10,000 plus eight thousand plus
23:34
lower fee for hundreds of we work a lot
23:37
less if the interest rate goes down say
23:41
five percent and it’s worth between I
23:44
need 507 it’s gonna be worth a lot more
23:45
as you sum it up in other words every
23:49
piece of capital equipment piece of
23:50
capital means land slaves under slavery
23:52
and can machine be worth more if the
23:56
rent goes up the annual productivity or
23:57
rent and worth less of the interest rate
23:59
goes up inversely proportionate interest
24:01
rate directly proportional we actually
24:03
annual rent and this is why by the YZ
24:12
the stock market has acted a lot of
24:17
peculiar way for many years the stock
24:18
market we’ve been taught the papers been
24:21
talking a lot recently about the stock
24:22
market boom the boom is only relative
24:25
another word the bull is all to what it
24:26
was a year ago but basically
24:29
the stock average the so-called Dow
24:31
Jones average it was the famous one
24:33
where you take the 30 top stock leading
24:36
stocks and then put them average him
24:39
into an index you get a an absolute
24:43
number which doesn’t mean anything at
24:45
stuff it just means its relative to each
24:47
other the other numbers you go down the
24:49
years since 1920 10 they first started
24:53
the Dow Jones index 1966 the average Dan
24:58
Jones Sox with a thousand under the
25:01
thousands of this was the number
25:02
averaging all the various stock values
25:04
ah in nineteen a last year at a 985
25:10
let’s cool down about 1200 identifying
25:13
hadn’t gone above a thousands a long
25:15
time so this means that a 20 years let’s
25:19
say the average stock to only go up by
25:22
twenty percent as an average number on
25:27
the other hand prices the price level of
25:29
triples of 1956 but this is a thousand
25:33
this is the price level consumers Price
25:36
Index it’s 3,000 now so this is the
25:39
things that the average stock by has
25:41
been wiped out in other words the
25:42
average person will held blue chip
25:44
stocks or average let’s say that Joan
25:46
starts with usually the top stock looks
25:47
the best company biggest companies nor
25:49
laughs they just held onto it they
25:52
essentially been semi wiped out on the
25:54
words them I don’t not only they’re not
25:56
been keeping pace for the price a nice
25:57
way below it you’re a capital value is
26:00
going down with by two-thirds since
26:04
nineteen sixty-six it’s now up to about
26:07
1800 so is it a big boom or 1700
26:10
something the last year but still not
26:12
that great if you consider it should be
26:14
3000 if you’re really going to match
26:16
what it well stocks were top prices
26:18
where I can 66 so the thing that just
26:21
kept the damper on the stock market for
26:23
a long time now even though there’s been
26:24
a lot of prosperity but even though
26:26
profits is going up now was the rental
26:28
value of a capital equipment of the
26:30
Corporations going up interest rates are
26:32
also going up at least until a couple
26:33
years ago so the interest rates go up
26:35
just puts a permanent damper on stocks
26:38
because even though the profits are
26:40
going up so that the value of
26:42
but what corporations assets go up
26:44
interest rates will also go up with
26:46
inflation as seeing macroeconomics as
26:49
you inflate as people catch on what’s
26:51
happening they interest rate there and
26:53
on the interest return but creditors get
26:55
wiped out inflation so you add on a
26:57
return and this puts a almost permanent
27:00
damper on a stock market stocks are a
27:03
what stocks are they’re essentially the
27:09
people’s evaluation of a corporate asset
27:12
assets of each corporation every
27:14
corporation got a certain amount of
27:15
assets expected returns on the assets
27:17
hopeful profits current profits a
27:20
hopeful future profits and these get
27:22
incorporated evaluation of the asset to
27:24
the market puts on this is a capital
27:27
equipment buildings goodwill all sort of
27:29
stuff which incorporating the products
27:31
and profits and the cause of the
27:33
corporation so if the if the profits or
27:38
expected profits go up expected future
27:41
profits go up stop prices will go up it
27:43
was expected return but if interest
27:46
rates go up again this means that these
27:48
puts a damper the tents for the price of
27:51
stocks go down so this is basically what
27:57
reason why stocks are not a good
27:59
inflation hedge most people think boy
28:01
whitewash why not a hedge against
28:03
inflation if we expect future inflation
28:04
you buy a lot of stock but the problem
28:06
with that is even though profits go up
28:07
interest rates oh oh I’m the stencil for
28:10
the ceiling on stock prices same way
28:14
with a bond market in the bond market
28:17
which is by the way bigger than the
28:19
stock market by far and overall numbers
28:23
what you have is bonds either government
28:25
bonds of corporate bonds corporation
28:28
let’s say she is a bond saying we will
28:32
pay the face of thousand dollar bond so
28:35
this means going to pass laws and it’s
28:38
doing 25 years but then 25 is a payoff
28:41
the whole thousand dollars the meantime
28:43
it’s a go pay let’s say ten percent that
28:47
comes out as an easy finger ten percent
28:49
whore interest so in other words
28:54
corporation in general mode
28:56
or whatever is committed to paying every
28:58
year a certain date I’d say December
28:59
first or whatever 100 bucks it’s a
29:02
coupon coupons with a bottle of the bond
29:04
and every year you take the coupon those
29:06
25 few pawns let’s say fat 25 years I
29:09
were you take couplet equipped with
29:12
heroine son of the corporation
29:13
headquarters and they send you one
29:14
hundred bucks in other words what a bond
29:18
gives you the right to one hundred
29:19
dollars a year and over a 25-year period
29:22
it’s a claymore right two hundred bucks
29:26
a year so the poor interest isn’t that
29:29
important the important thing is you
29:31
have what you have is a right two
29:32
hundred all in the year by the way
29:33
that’s why bond hole is walking call
29:34
coupon clippers because they they make
29:37
their money by taking the coupon
29:39
clipping here cooking up cooking off an
29:41
edge of it sending it in now the
29:43
question is how much is so this is a new
29:45
bond what comes on the market has a
29:46
certain par interest rate but the bonds
29:49
are traded all the time back and forth
29:51
there was a huge bond market corporate
29:53
government bonds and people spying on
29:54
some of them old bonds all the time and
29:56
how much taste buy or sell for depends
29:59
on the supply and a man on the market
30:00
basically depends on what the interest
30:01
rate is the general interest rate
30:03
because if the general ledger says let’s
30:07
say ten percent would be selling in 100
30:09
but supposing the interest rate goes up
30:11
to twenty percent which is was about the
30:13
early seventies for a while couple years
30:14
at a twenty percent interest rate
30:18
nobody’s going to spend a thousand bucks
30:21
but was there asking you here when the
30:24
bond was first issued you pay a thousand
30:26
dollars you get 10 person for the right
30:28
to get a hundred dollars a year this is
30:31
a ten percent per year return nobody’s
30:32
gonna do that if they can get twenty
30:33
percent other places money market funds
30:35
or whatever those things in order to
30:37
make this attractive to make the selling
30:41
of old bonds of attractive the bond
30:43
price falls from a thousand dollars
30:46
which is Lee have issued at to about 500
30:48
at 500 dollars you’ve only important to
30:51
defy or the right 200 all of the year
30:53
because then you’re getting a twenty
30:54
percent return other words the twenty
30:58
percent interest is the heat is what’s
31:00
known as the yield on the bond market
31:02
this is what the bond yields from moment
31:04
to moment if you buy it on the market so
31:06
this is the interest yield you know the
31:08
par interest rate is ten percent
31:10
was five years ago 10 years ago nobody
31:11
cares about that in fact what happens is
31:14
in order to get a clean one hundred
31:16
dollars a year you want to buy it to pay
31:18
for it only five hundred dollars that
31:20
you want a twenty percent return because
31:22
that’s what you can get other places
31:23
this is this way interest rates tend to
31:25
equalize throughout the home market not
31:27
it’s the pain easily but the tendency
31:29
it’s the equalizers you can get twenty
31:31
percent somewhere else and i can pay
31:32
twenty percent a bond market not going
31:36
to get yeah I could you know get by
31:38
Marshall pepper set if you may get
31:39
twenty percent or eighteen percent or
31:40
whatever the money markets fun so
31:44
conversely if the price if the interest
31:48
rates go down let’s say 25 percent and
31:50
make it again simple arithmetic here in
31:56
other words here we have on our formula
31:58
if the interest rates go down the
32:00
capital value goes down this case of
32:02
interest rates go up the twenty percent
32:04
the capital manual down at five hundred
32:08
the rental return is the same oil time
32:11
it’s a fixed and a bond it’s picked one
32:12
hundred all the year forever that’s the
32:14
way it was issued if the interest rate
32:17
goes out of five percent however this
32:19
means now people willing to pay more for
32:23
her all of the year and so the bond
32:25
prices bit up to the two thousand
32:31
dollars a two thousand dollars then you
32:33
pay a hundred to peaches as all to get
32:36
hunter dollars in you you’re paying five
32:37
percent the Lord and the interest rate
32:39
falls this case of five percent the
32:42
capital video is up to two thousand
32:43
dollars so in other words they bond the
32:46
bond yield interest yield on the bond on
32:49
bars are the exactly inverse proportion
32:51
to the interest rate i’m a trick to me
32:53
Khalifa Z so the price of a bond the
32:56
bond price increases means the interest
32:59
return is fallen the want price goes
33:01
down even concerned goes up so this is
33:04
why during an inflation during the later
33:06
stages of inflation of people catch on
33:08
what’s going on only the custom
33:09
inflation interest rates keep going up
33:12
because because the value of the dollar
33:15
is worth less when you pay it pay back
33:17
the debt than when you get it in other
33:19
words if you pay if you charge chem
33:21
percent interest on a loan
33:23
two years from now you get the loan back
33:25
but now the dollars only worth half of
33:26
where was the fort media game virtually
33:28
wiped at getting only five percent so as
33:31
the creditors and debtors are going to
33:33
wake up to the permanent inflation of
33:35
existed in the 70s the interest rate is
33:37
inflation premium gets tacked on an
33:39
interest rate as interest rate goes up
33:41
the bond prices fall yielded up Bob
33:46
prices are collapsing during it so if
33:47
you have a really severe inflation of
33:49
Bob fight the bond market collapses as
33:51
that of Britain and any other country of
33:53
that with hyperinflation the first thing
33:55
that collapses a bond market nobody’s
33:56
going to buy Billy’s gonna buy the white
33:58
one hundred dollars a year a thousand
33:59
dollars a year they know that hundred of
34:01
thousand be worth peanuts and a year and
34:03
a half or something so so when a sleigh
34:07
shin was moderated has not gone to
34:09
eliminate but was moderated and Reagan
34:11
administration down to lower much lower
34:13
levels the bond market has a revived
34:16
before that the bond market appointed
34:17
cracking all together in Britain when
34:21
the Britain had a severe inflation film
34:23
Wallace we’re going on most some extent
34:25
the blond mark is the first thing to
34:27
collapse nobody would buy bonds I’m
34:28
being the best at it so if you think
34:30
there’s gonna be inflation if you’re
34:32
anticipating higher inflation don’t buy
34:34
bonds of any sort the first thing not to
34:35
get unless you’re willing to hold onto
34:37
it for Philip matures of course is just
34:39
20 or 25 years if you’re expecting to
34:42
try to get rid of it someday sell it the
34:46
worst thing that’s worth thing to buy
34:48
the first things first people wiped out
34:50
in United Sates inflation of the guys
34:51
are both savings bonds of those things
34:54
like three percenter something you hold
34:56
on of a savings bond for 20 25 years and
34:58
yet you find out the money you get is
35:00
worth about half o was when you first
35:01
invested in it because of because of
35:02
inflation that’s the last thing they get
35:07
the KC now we see that the interest rate
35:12
or the term is especially interest rate
35:14
as a time market and time preferences
35:16
and plus plus or minus inflation three
35:19
minutes ago really a macro question
35:21
anyway that’s the basic basic chords of
35:24
it and say the time market permeates
35:26
both for parental relationship between
35:30
rent and capital value for interest
35:32
rates in general so what you’re doing is
35:33
the capital of value of anything whether
35:36
it’s a bar
35:36
there were stocks or a house or our
35:39
sheen or factories or whatever is
35:42
determined by the this kind of some a
35:44
future prospective future retrospective
35:45
feature returns on the whatever whatever
35:48
the pod is and so the capital of value
35:53
is determined by two things that we
35:54
expected rents the future effective
35:56
future rental returns from the from the
35:59
product and the interest rate which
36:02
discount rate that you use to apply to
36:04
it and this is again why when interest
36:08
rates go up future investments become
36:11
less profitable investment and long-term
36:12
future construction projects things like
36:15
that become much less profitable when
36:17
the best when interest rates go down
36:18
there how much more profitable when when
36:22
the government’s trying to evaluate for
36:24
example whether or not a certain future
36:26
dam or any other long-range project is
36:28
process profitable or not it much much
36:31
depends on what interest rate they
36:32
consider the correct interest rate the
36:34
chart government always liked the charge
36:35
give itself a low interest rate and make
36:37
whatever does seem profitable if you
36:40
take the market interest rate most of
36:41
the government projects are uh neck
36:43
anomic even in brown on their face
36:45
because the returns might be four
36:47
percent interest rates ten percent of
36:49
something like that obviously on
36:50
economic even without any other deeper
36:53
consideration so so we then have a
36:57
relationship between capital value now
36:59
we determine what the capital value of
37:01
everything is or the price of every the
37:03
whole product mainly this the sum of
37:05
future rents are expected future as this
37:07
kind of by the interest rate it just
37:09
raised determined by the time market
37:10
plus inflation premium as well as
37:13
inflation time preferences time
37:16
preferences can change accordance with
37:17
lots of office things cultural cultural
37:21
points risk of risk of being confiscated
37:25
obviously if you’re you’re sick eunuch
37:27
your investments we confiscate you not
37:29
going to invest very much you might
37:30
spend more currently figuring what the
37:33
heck good tomorrow we’ll meet over the
37:35
money can become scan anyway mezcla
37:37
spend it now things of that sort usually
37:41
as they usually the economy gets more
37:43
affluent people have lower and lower
37:45
type reference rates usually the willing
37:48
them to invest more in the future and
37:49
then
37:50
less than a gram or apple in that so
37:51
usually is a long-run proposition
37:54
interest rates will fall over time but
37:56
this is not necessarily true just a
37:58
general tendency and also interest rates
38:01
different i preffer differ over culture
38:02
some cultures people much more thrifty
38:05
save a lot to the future they have a low
38:07
time preference others other coaches are
38:09
going to spend money right right now
38:11
they have a high time preference right
38:13
so and over the market of course all
38:15
these things balanced anitha with
38:16
general overall interest rate okay so
38:22
this is a we’ve now really mopped up we
38:26
tryna concluded amount analysis of the
38:28
market and market pricing when I got
38:30
consumer goods prices producers goods
38:33
prices wage rates rental prices of all
38:36
sorts and finally the relationship
38:38
between that and the interest rate and
38:39
capital value of capital goods capital
38:42
values of general for capitalization
38:44
otherwise this process of arriving and
38:47
capital price for capitalization
38:49
capitalization of future rents and i
38:53
only get finally conclude our analysis
38:56
of things like taxi medallions remember
38:59
we talked about taxi down use tobacco
39:00
right my stoop grow tobacco things of
39:03
that sort of course that determined by
39:06
supply and demand but also in addition
39:08
of that supplying the man basically is
39:10
the value of them of this monopoly
39:12
privilege there’s a taxi medallion will
39:15
be the capital value be determined by
39:17
the sum of future rents this kind of my
39:20
interest rate so as the profits on a
39:25
taxi business grow up the capital value
39:28
of medallions has to go up and the other
39:30
half interest rates go up a type of
39:31
lower the capital value one of the
39:33
reasons why the McDaniel was about 80 60
39:36
thousand i think when Miller wrote his
39:37
book it’s now about a hundred five
39:38
thousand one of the reasons for that is
39:40
the drop and interest rates in the last
39:41
45 years they’ve dropped from bad coal
39:44
percent to about 80 or something like
39:45
that anyway argument yeah yeah the right
39:49
yeah why not better oh we’re looking at
39:52
so um yeah it’s a basically you’re
39:59
multiplying by the plan book percentage
40:01
really wanting one so
40:04
any rate the so as the interest rates
40:08
have fallen last few years of the
40:09
because inflation has fallen the value
40:13
of capital assets like that in that case
40:16
the white to operate the run a cab or
40:18
driver can own encounter should say is
40:21
going way up so it’s been a reflection
40:24
of to another what these medallions are
40:26
their rights their rights to monopoly
40:27
privilege or monopoly rights to this
40:31
restricted entry into a restricted
40:33
profession of our operating a cab and
40:36
the same way with tobacco right that
40:38
might be the back of growing plantations
40:40
oil import right to the time we had oil
40:42
import quotas only certain people can
40:45
those who own the right to have a
40:46
tobacco farmers only like to import oil
40:48
these fluctuating accordance with
40:50
supplying a manatee but the supplying a
40:52
man depends on people’s estimates a
40:53
future rent the future returns and rate
40:56
of interest and weighing two against
40:58
each other so and I guess that that
41:03
really completes our discussion in the
41:06
market the next hour we’ll talk about
41:08
the sum up a court and have questions
41:10
and whatever that by the exam I’m going
41:13
to break I was going to be a no object
41:15
of answer in other words both of all
41:17
guys I said last time multiple choice
41:19
some multiple choice and Lee and a good
41:21
old manor you know custom to some fill
41:23
in the blanks at some color back of a
41:26
multiple choice which really the same
41:27
thing as a mobile another for multiple
41:29
choice so I’m the purpose of this review
41:33
with the help you out here and then you
41:36
want to financing question anytime
41:38
break-in because that’s the whole point
41:40
whatever it’s fuzzy to be clarified the
41:46
we started with or diminishing marginal
41:49
utility for the basic form of action
41:52
analysis of action applied anything any
41:56
consumer good in particular if for any
42:00
the supply of any good increases the
42:03
value attached any one unit or decline
42:06
and because your most important news
42:09
comes first thing your next important
42:11
use etcetera etcetera so the greater the
42:13
supply of a product the lower the value
42:16
of a of each unit of
42:17
the product this is this also called
42:21
that paradox of value of value of
42:23
paradox or the diamond diamond bread or
42:26
diamond water of paradox mainly how come
42:32
bread which is very important of water
42:34
which is very important to staff of life
42:35
how come they’re worth very little on
42:37
the market that prices are very cheap
42:38
the other hand diamonds which are mere
42:40
frippery and luxury are very expensive
42:42
so that seems to be a contradiction
42:43
between youths value and exchange value
42:46
your prices and live or diminishing
42:51
marginal utility clears that up namely
42:53
that in real life we choose and buy
42:57
stuff or not by sup not on the basis of
43:00
the philosophic value of the whole of a
43:03
class of goods but on the basis of each
43:06
unit we buy units we buy loaves of bread
43:09
or TV set or diamond count carats of
43:13
diamonds or whatever and we buy the
43:15
relation to the supply is available so
43:17
that because bread and water have a huge
43:19
supply each stock available the value of
43:22
each unit is low wheres diamonds are
43:23
quite rare and therefore and limited
43:26
very small supply therefore the value of
43:28
each unit is higher so this clears up
43:31
the alleged paradox of conflict in use
43:33
value and change that from the law of
43:37
the mission watch utility we get the we
43:39
arrive with falling demand curve our
43:41
basic basic curb microeconomics the
43:47
price is on the y-axis the quantity is
43:50
on the x-axis we get a demand curve
43:51
falling in other words the higher the
43:53
pipes or less will be purchased see the
43:55
for each individual anymore for the
43:56
market as a whole so this gives you in
44:00
other words the locus of how many
44:03
product how many of them unit will be
44:04
purchased given the different prices and
44:07
the intersection of the man curve any
44:09
good think supply line line will give
44:11
the market price and we saw why this is
44:16
true because if the price is higher than
44:17
the market price you get a surplus and
44:20
unsold surplus making supplies greater
44:22
than demand at that price and the unsold
44:26
surplus in order to sell itself both
44:27
businessmen and want to increase their
44:29
profits and decrease their losses
44:31
we’ll cut the price in as they do that
44:34
but surplus is eliminated similarly if
44:37
the price is below the market price of
44:39
the X more people want to buy then there
44:42
is available the man is greater than
44:43
supply of that it’s a shortage and the
44:48
stuff disappears in the shell very
44:49
quickly and then the response of that
44:51
business and raise their prices that C
44:53
is there they may as well charge more
44:55
since the stuff at disappearing quickly
44:57
as they do that the shortage is
44:58
eliminated until we’re back again to the
45:00
equilibrium point at the equilibrium
45:02
point and only at that point of the
45:04
supplying the man equal the market is in
45:07
other words cleared there’s there’s no
45:09
shortage of those surplus and the mat
45:12
offered is exactly how much that people
45:14
want to buy so this is our fundamental
45:16
analysis of the market prices and market
45:19
in general that the responding to the
45:22
man curve demanded by values of
45:24
consumers we should turn the term of the
45:27
demand curve which in turn determine the
45:29
price given whatever supply is available
45:31
and and then if the man increases
45:35
mankhurd those up for any reason tights
45:38
will go up and then more supply of the
45:42
abort profits will go up and therefore
45:43
people produce more overtime that
45:46
overtime supply curve will keep
45:48
increasing set it here you’ll get a
45:51
larger and response to the higher demand
45:53
you’ll get eventually a larger and the
45:55
higher price again eventually a larger
45:56
production and conversely if the demand
46:03
curve knackered fools or whatever reason
46:05
let’s say the people shift their their
46:09
pace from Bourbons of the vodka man Kurt
46:11
Bevacqua goes up the maker from bourbon
46:13
goes down that happens if I fools and
46:16
losses are may or incurred and business
46:19
pence supply less bourbon over at time
46:22
and the supply goes down and the price
46:25
goes up a bit too what you have then in
46:27
other words is in response to the
46:28
long-term changing the man this case a
46:30
for less less bourbon is produced 10
46:33
years from now saying over there would
46:35
be now because of this long-term shift
46:37
so in other words resources are
46:39
determined over time on the basis land
46:41
labor and capital how much is being
46:42
produced there’s a respond
46:44
the consumer demand and how much they’d
46:46
be willing to pay for the different
46:48
products so at any given time the market
46:53
price is determined by the intersection
46:55
of supplying to man and long run supply
46:58
is the influence to determine by one run
47:01
the man then we went through the various
47:06
applications of this and why prices
47:08
change and then what happens that
47:10
there’s a price control by government
47:14
which messes things up in other words
47:16
maximum price control creates a
47:17
permanent shortage which gets worse over
47:19
time doesn’t allow the market to clear
47:22
the market creates a permanent shores
47:24
and lowers supply over time which makes
47:26
the shortage even worse and various
47:28
other effects like markets only
47:30
rationing through lining up queuing up
47:33
and all that sort of stuff the client
47:35
and quality all these things are a
47:36
product of pricing maximum maximum price
47:39
control and with minimum price control
47:45
where the government keeps up keeps the
47:48
price above the free market level and
47:51
then the supplies greater than a man
47:53
permanently another the permanent
47:54
surplus which increases over time as the
47:57
people will reproduce more but at the
47:59
higher a greater profit so you have a
48:02
problem of a surplus is just worse this
48:04
is particularly true in two areas
48:06
historically a farm price supports which
48:09
are for forgetting we’re told alignment
48:10
minimum wage laws similarly which create
48:13
unemployment or our surplus labor
48:15
looking for for jobs again unavailable
48:18
and so we still have that farm price
48:22
support come one intervention lease and
48:23
more interventions try to solve Lee but
48:25
with one of the mention trying to cure a
48:27
problem doesn’t cure it the creates
48:29
problems which caused more intervention
48:31
them and you know there’s a supply as
48:33
surpluses go up and they try to make the
48:36
former’s cut their production if they do
48:38
it by making it cut their acreage
48:39
farmers will cut the acreage and produce
48:41
more on each acre if you why not even
48:43
more more surplus and you try to force
48:45
them a cup of production the endless
48:47
chain of events brought about by the
48:49
initial bad premise and then continuing
48:51
on the same path so we went through a
48:56
lot of that will have what the effects
48:58
of maximum
48:58
price of torment and minimum price
49:00
control minimum Thanks control that was
49:05
about the first half of the term dealing
49:07
with that then we went on to the theory
49:09
of the firm and firm of course price to
49:14
maximize its profits and what exactly
49:16
that meant and so then we had dollars on
49:23
the y-axis quantity of production the x
49:25
axis then total revenue which is equal
49:32
price times quantity in total cost which
49:37
is purchased not spent and then total
49:42
revenue something like this and we can
49:46
either go up or go down since price and
49:48
quantity are move inversely in other
49:52
words the price goes up quantity so
49:54
we’ll go down and vice versa as the
49:57
Sultan of the man curve public course is
49:59
always rising this is a minimum total
50:02
course providing that firms are the
50:04
incentive the keeper Kirko course a
50:06
minute if I don’t have course plus
50:07
pricing in the fence contracts and all
50:08
that really of course will balloon
50:10
upward because the government’s the
50:12
taxpayers paying back recompense them
50:15
plus with guaranteed rate of profit
50:17
guaranteed markup so in this case the
50:20
maximum profit will be the maximum
50:23
distance between the two right here
50:25
being a production point and this will
50:28
tend to be EU also be the slope of the
50:31
tangent sorry quelle or the marginal
50:33
revenue equals marginal cost marginal
50:38
mainly the change in rep total revenue /
50:42
those like you and marginal costing a
50:44
change in total cost for each new unit
50:49
so this is what marginal revenue
50:51
marginal people a marginal cost is a
50:54
necessary but not sufficient condition
50:57
of maximizing total profit cuz it could
50:58
be in a minimum zone here to there was a
51:01
two things here the tangents are also
51:03
equal or a minimum and the only way you
51:05
can tell by the maximum minimum of a
51:07
look at the total unless of the textbook
51:09
though you implicitly assume only one
51:11
peak
51:12
knowing because the thing off here but
51:15
of course it’s easy then you say well
51:16
whenever them that marginals are equal
51:18
and its maximum profit that’s because
51:20
you’re immediately forgetting about the
51:22
other possible toss of peace and the
51:26
production schedule this is an area so
51:31
in other words the maximum profit point
51:32
will be it whatever where it is it will
51:34
be at a point where the demand curve for
51:37
the firm of the elastic this is the
51:38
elastic zoom nectar will never be an
51:42
inelastic thumb it means any any for any
51:46
business firm at all to the size of
51:47
whatever always be producing if it knows
51:50
what’s going to have any smart at all
51:51
always be producing an area or the man
51:53
for its product the elastic hey
51:59
transposing that into the the other
52:01
diagrams of this is the average on
52:04
marginal diagrams this is the total
52:05
diagram this is a total revenue and
52:07
total curve if we assume only 1p get no
52:11
truck okay so if we cut this off here to
52:15
the text books always doing to make life
52:16
easier for them then we have total
52:25
revenue will be since man curve is
52:28
always falling that’s the same thing as
52:29
the average revenue curve marginal
52:33
revenue always be falling below it and
52:36
destroy more sharply it’s mathematically
52:39
the way and we worked out this is
52:41
marginal revenue the cost curve is we’ve
52:44
seen is more or less u-shaped although
52:47
not precisely that anyway if if you
52:50
shake something like that it decreases
52:51
the average total cost decreases over
52:55
time over to our product number of
52:58
producers love reaches of some kind of
52:59
swelling goes up again so marginal cost
53:02
be something like this will intersect
53:06
the fourth point it’s our usual more
53:09
marginal average relationship namely
53:12
whenever an average of anything is
53:14
falling the marginals below it wherever
53:16
the average of anything is rising and
53:17
mortal above it and therefore whatever
53:19
the average or anything is it a truck or
53:20
a peak and then it’s intersects the
53:22
marginal and so the maximum
53:26
profit point then given all the
53:27
assumption given there’s only one p and
53:30
though the no fourth point will be
53:32
wherever these two intersect marginal
53:34
revenue and marginal cost intersect
53:37
other words if you only have this
53:39
diagram you don’t have that one so this
53:41
will be here and then the total profits
53:44
will then be at that point but there’s a
53:47
thousand units of whatever you’re
53:49
producing at that thousand units this is
53:54
average revenue with an average cost so
53:58
the total profits regal average revenue
54:00
minus average cost times quantity and
54:02
it’s in the words as follows from that
54:05
profit equal total revenue minus total
54:08
cost so profits are also equal the total
54:11
revenue / quantity which is average cost
54:16
evered revenue minus total revenue by my
54:18
coins average cost times quantity like
54:23
this these drop out so in other words
54:27
total profits will be this area here
54:30
this minus that times Matt this will be
54:35
the total profits that the maximum
54:39
profit point at the where production is
54:42
a thousand of sale nice and conference
54:44
point average costs are are falling are
54:55
you shape because they’re indivisible
54:56
you know the production function as such
54:58
you might think that it should be a
55:00
constant average cost because every same
55:03
causes that we deal the same effects the
55:06
average cost curve is falling over along
55:09
time because for short term whatever
55:11
because I’ve indivisibility in fact that
55:14
factors of production cannot be
55:15
multiplied and I will be multiplied the
55:16
same extent so since you can’t you can
55:26
multiply that well just for one so stop
55:28
yelling in there up there since you that
55:33
you can’t you can multiply the number of
55:35
shipments free card shipments by twenty
55:37
percent or whatever but you can’t
55:38
multiply a number of tracks
55:39
by funny passat can only eat a double
55:41
them or leave them the same amount the
55:43
allottees indivisibility and therefore
55:45
as you keep increasing the production
55:46
you tap the used up more of a fixed
55:49
quarter more of these big indivisible
55:51
factors of production and I finally get
55:54
the point all the being used up in the
55:55
beginning be over use until the average
55:58
course start going up arm in real life
56:05
the average cost curve usually goes
56:09
instead of going to a fixed one point or
56:13
one trough point it usually goes down
56:15
like that reaches a plateau and it goes
56:17
up again so there’s a whole area here
56:21
the zone in which businessmen are
56:22
interested in where average course is
56:25
constant marginal cost is the same as
56:27
average course than it goes up for that
56:29
length of time which is like businessmen
56:32
understand what economists of talking
56:34
about any comments talking about average
56:35
and marginal to them the businessmen
56:37
courts are always constant and the
56:39
reason is they’re dealing of this zone
56:41
interested in a hypothetical gone when
56:42
they’re never actually functioning and
56:51
then we went on to pricing of factors of
56:54
production and we’re going to a long
56:58
elaborate process of showing how factors
57:00
of reductions are may incur per package
57:03
production determine turns out demand
57:06
curve will be the marginal revenue
57:07
product curve which will be falling for
57:12
two reasons one look at marginal
57:15
physical product that’s falling and two
57:20
because the man care of it for those
57:23
marginal revenue is falling so that we
57:25
multiply March a physical product I’d
57:26
much rather you get a fully motor of
57:28
your part yes sir
57:35
accordin yeah this is a demand curve for
57:38
this is an anchor for the firm for the
57:40
product of a firm thank her for Wonder
57:43
Bread this is a man car with a firm for
57:45
factors of production wages labor land
57:47
and capital this is an anchor for the
57:49
factor and this is a man care for the
57:52
product product of the firm so this is
57:57
the main curve of factors of production
57:59
and then supply a tax deduction whatever
58:01
it is whatever the stock of labor plant
58:04
of capitalism give them the yield of
58:09
wage rate of the pipes of the factors or
58:11
whatever intersection of these two
58:12
things and the supply of labor picketing
58:18
force largely determined by population
58:21
we went into that last time I see with
58:23
the alleged population problem which
58:26
turns out really not too much of a
58:27
problem is really the population follows
58:29
the income level more or less over it
58:31
over over time as income and wage rates
58:35
go up and real wage rates go up stand
58:37
living goes up population usually tends
58:39
to adjust itself to that so it’s the
58:41
maintainer a desired income level
58:45
contrast the Malthusian doctrine which
58:48
is the people always breed up to the
58:49
substantive subsistence level so to
58:51
speak and today for us to talk about
58:53
interest rate and the capitalization and
58:55
the compilation is determined by the
58:58
expected future returns or rents from a
59:01
product or equipment or whatever and the
59:05
the intersect interaction is an and the
59:07
interest rate which is the time
59:09
preference right ok there any questions
59:12
on any of this stuff we have a whole
59:13
let’s summarize the whole term not about
59:14
a half hour so the money you’re yeah
59:18
final will be as i said the multiple
59:21
choice and fill in the blanks most of
59:23
the blanks of the those novel cover the
59:35
whole term but will cover the major
59:38
stuff is nothing to be no trick
59:39
questions on obscure areas and then
59:41
basically work of early
59:43
major things we’ve been talking in bath
59:45
yeah the final will be whether in other
59:50
words if further I’m leaning over
59:52
backward to help the students if the
59:54
final you do better on the final on the
59:56
midterm I figure you increase in stature
59:58
you’ve learned that separate so be worth
60:00
more than 50 does that if on the other
60:02
hand you worse in the finals give us
60:03
fifty percent so i’ll try my bestest i’m
60:07
not mechanistic and so well so they’ll
60:12
be filling of the multiple choice also
60:15
be filling the blanks which is multiple
60:16
choice where you truly know you have a
60:20
blankets either increase decrease remain
60:23
the same or indeterminate and as a
60:25
filling and real fill in the blank you
60:26
put your own word in however you don’t
60:28
don’t worry about the grammar key thing
60:29
is to forget about the grounders don’t
60:31
worry about the sentence structure and
60:32
with a plural or singular or anything
60:34
like that just put in with your think is
60:35
right and this is not an English course
60:39
to worry about that and of course a I
60:43
should mention the union stuff will be
60:45
covered as partly on the attack of
60:46
unions on the wage rate craft Union
60:49
versus industrial union the Wagner Act
60:51
is changing a whole labor market
60:54
structure yeah well well is the winder
61:00
mags 1935 looks like you know that about
61:03
it the Wagner Act came in 1935 and
61:07
that’s your on up that’s the only that’s
61:12
the only date you have to know and I see
61:13
35 the why you’re right hey that’s uh
61:20
the once again the there’ll be nothing
61:24
you should read the chapters of their
61:27
indicated in the outline it but there’s
61:29
nothing won’t be anything I examd I have
61:30
a coke about in class is a lot of stuff
61:32
the choice the book has I don’t talk
61:34
about and that’s not be included that’s
61:37
it and they’ll okay god bless you good
61:41
luck

Leave a Reply

Your email address will not be published. Required fields are marked *