Introduction to Microeconomics – 2 of 14 – Value – Murray N Rothbard

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

2. Intro to Micro: Value

Why is it that things like bread and water which have high use values are cheap while on the other hand luxury items like diamonds are very expensive? This paradox was not solved until it became understood that people choose only a marginal unit – this loaf or this diamond. Value can be attached to a good only by individuals’ desires to use it directly in the present or in the present expectation of selling to such individuals in the future. It is subjective only.

Part 2 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 – 2 of 14 – Value – Murray N Rothbard – YouTube

http://www.readrothbard.com/introduction-to-microeconomics-2-of-14-value-murray-n-rothbard

TRANSCRIPT

00:00
okay so last time we dealt with the law
00:04
of diminishing marginal utility the fact
00:06
that as the limited supply of a good
00:10
increases the value of each unit of a
00:13
good goes down and the words the margin
00:15
utility of a good ghost band and also
00:20
talk about the man curbing falling and
00:22
that’s really oh those are two basic man
00:25
karam meaning how much the consumers
00:27
will buy any given price the open the
00:34
door here since that actually has a nice
00:37
quiet air conditioner I’m come to the
00:38
part anyway was this works okay i love
00:50
the finishing marginal utility as a key
00:52
thing that this is this accomplishing
00:54
history vegan Amish thought Adam Smith
01:02
the alleged founder of economic actually
01:04
really wasn’t but he was I guess of one
01:06
of the founders of economics as a
01:08
separate discipline a set of the wealth
01:12
of nations which is the famous classic
01:17
economic classic said there’s a value of
01:19
paradox that’s called bania paradox and
01:22
he said he couldn’t solve it that’s a
01:24
very peculiar in history of thought but
01:25
he had solved that 20 years later
01:27
earlier in his lectures which were late
01:30
published much later on 1900s on so it’s
01:33
very peculiar relief acute situation
01:35
history of thought finally have been
01:37
solved by the scholastic philosophers
01:39
his late 16th century and all of a
01:42
sudden he creates this problem over the
01:44
value of paradox and it goes as follows
01:47
namely how is it why is it that things
01:54
like bread and water which are let’s
01:57
take bread its usual equal diamond water
01:59
paradox would but the waters of extra
02:02
complications any rate bread which is
02:05
the staff of life it’s very important
02:06
philosophically demand because you need
02:09
it for life in a water of course anymore
02:11
and yet here bread is very
02:13
Horton has a high use value and yet on
02:23
the market is very cheap and bread is
02:25
you know other those days be much
02:26
cheaper than a buck a loaf water those
02:28
days was free quote unquote but any race
02:31
very cheap so has a it’s cheap on the
02:33
more therefore has a low exchange value
02:36
so all right it’s 11 puzzling situation
02:42
here’s something which is as a high use
02:44
value in a low exchange value and the
02:48
other hand this is bread and water you
02:54
can probably think of other things males
02:56
are pretty important for construction
02:58
and neo nails are cheap ok the other
03:01
hand you have other other things which
03:03
are lucky luxury their foot brazen here
03:04
and Smith I think is one of us with
03:07
felons those mothers of Smith of the
03:08
Scottish calvinist he wasn’t a hardcore
03:11
Calvin a city to the core is off for
03:12
Calvin until we hated luxury anyway he
03:15
didn’t like luxurious consumption
03:17
diamonds or a mere flipper easy as he he
03:20
put they have no value no use value
03:23
that’s a little extreme most of us say
03:27
well they have yeah philosophically does
03:28
not have a very high value saying low
03:30
you serve at you diamonds ah Crusoe and
03:35
Robinson Crusoe and doesn’t wanna land i
03:37
go for diamonds is the first first
03:39
cousin I as priority I’m he’s like ah
03:41
and yet look at Diamond vines are
03:44
extremely expensive on the market they
03:45
have a high exchange value okay and
03:53
won’t re strange thing I can’t solve it
03:57
and Ricardo has disciples saw the same
04:00
thing or more than can’t solve it was
04:02
this is a valuable car dock therefore we
04:04
can’t say anything by consumers the
04:06
value of to consumers the whole utility
04:08
analysis they can’t say anything about
04:09
it because they’re stuck in this thing I
04:11
have to deal with the entrepreneurs and
04:12
business and labor and roll out sort of
04:15
thought I’m consumer analysis drops out
04:16
of the picture except in France where
04:17
they never both of us but Britain had a
04:22
dominant he cannot make doctrine a 19th
04:25
century and so this so we were
04:27
were unfortunately took a hundred years
04:29
to get out of this to solve the value
04:32
paradox and from this ideas he comes the
04:36
left wing position like Veblen on these
04:38
other characters and late 19th century
04:41
America later saying WOW capitalism
04:43
market economy stresses production for
04:47
profit and not for use they produce
04:50
things like diamonds which are
04:51
for-profit of a high value they don’t
04:53
produce bread and water or something
04:54
with your and the low value you smell
04:57
you all right so this economy that means
04:59
production for profit and production for
05:01
use becomes very important history of
05:02
left-wing thought the by this time we
05:08
have the tool you have a tool in your
05:10
possession to realize the fallacy in
05:11
this whole nonsense palette basic
05:13
fallacy because people do not choose a
05:16
philosophic value they don’t sit around
05:19
the siding and one big vote you know
05:21
like a world vote supposing let’s play
05:23
this way I’d like to use models and
05:26
macro i use my lot much i call the angel
05:28
Gabriel model here anyway there’s
05:29
another ancient this is let’s go back of
05:31
a model of a grand ol I think I could
05:32
send the Randall science fiction movies
05:34
of 50s I think 15 and 60 were some space
05:38
character interfered blocks in the old
05:39
television sets you know all of a sudden
05:42
would heart where girls what challenge
05:43
want some guy is speaking here from the
05:45
planet ungu or something and he hands
05:47
earthlings of he said those slings
05:49
listen you know you have peace conclude
05:52
peace now or die in six days something
05:53
like that well let’s the planet some
05:57
some interplanetary character now come
06:00
to the ER everything because that’s us
06:01
with a choice okay you got your choice
06:03
folks from now on you have a world
06:06
pallamary decision your Voki on your TV
06:08
set or something you have a choice of
06:11
losing from forever and more from now
06:13
honestly end of eternity either all the
06:15
bread in the world or all the all the
06:17
water outside whichever all the diamonds
06:18
in the world that’s the choice where
06:20
human races facebook well given that
06:22
choice i’m sure we choose bread or water
06:24
on diamonds and the the space people
06:27
would overly RB or go off of the
06:29
diamonds so the point is in real life
06:32
and on faces this time of a choice not
06:33
crazy all-encompassing class choice
06:36
we’re faced with unit choices marginal
06:38
choices the whole point of the unit
06:42
when somebody goes to buy something then
06:45
I face a situation of GE oh here’s all
06:49
the bread on the world versus all the
06:50
diamonds now you’re faced with things
06:52
should i buy this loaf of bread or
06:53
should i buy this diamond with 12 carats
06:56
or something in that situation the
06:58
marginal unit becomes extremely
06:59
important the Lord emission marching
07:00
utility becomes with sizes namely it so
07:07
happens that Brad brings and water of
07:10
our super abundant they’re everywhere
07:11
not what of course is not not so
07:13
plentiful in some states in a source but
07:15
basically federal water supervised like
07:17
huge supply of it so even if you start
07:20
there was one loaf of bread oven world
07:21
one gallon of water you have a very very
07:24
high this is more utility with time this
07:27
is quantity okay if you only had one
07:31
loaf of bread in the world some reason
07:33
or one marg you just wouldn’t one look
07:35
gala water you have extremely hot people
07:37
we willing to spend hundreds of thousand
07:39
dollars with one little low for a little
07:40
a little gal unfortunately they have a
07:43
lots of bread lots of water over places
07:45
so this is a marginal utility curve or
07:49
out here somewhere so that each unit as
07:53
we deal in units in the real world each
07:56
unit each gallon of water each quart of
07:58
water or each pound of bread is very has
08:05
very cheap because a low marginal value
08:07
when we choose units as I say we don’t
08:10
choose like Crusoe with 20 law instead
08:12
of one the pen tablet what the supply is
08:14
we have a huge supply fortunately a huge
08:18
supply of both water and bread therefore
08:20
it’s cheap units are cheap the other
08:23
hand with diamonds supplies very little
08:25
very rare limited scarce that’s true we
08:28
have a government cartel monopoly which
08:30
makes us skier sir I’ll get to that we
08:32
get the monopoly it’s run by the South
08:34
African government collaboration the
08:37
beers and company but any rate it’s
08:39
still very extremely scarce there’s only
08:41
a few diamonds that’s really South
08:43
Africa virtually has the only diamond
08:46
mines so we have then even though
08:49
diamonds the first unit is much lower so
08:53
at least then
08:54
the first unit of bread or water but not
08:56
that many units are rented the supplies
08:58
limited so we have a higher price for
09:01
diamonds on the market in other words a
09:03
higher valuation by consumers for each
09:05
unit for each carrot yes is the unit
09:08
weight at Diamond school inherit CA are
09:11
80 the value placed by people on each
09:14
chair is much higher than a value piece
09:16
that you loaf of bread there’s nothing
09:17
wrong with that I think there’s nothing
09:18
paradoxical nothing I on philosophic as
09:20
I think there’s nothing unnatural about
09:23
it perfectly legitimate once you see
09:25
what the whole picture once you see the
09:26
interpenetration between supply and
09:30
valuation its marginal what you realize
09:33
about the margin this whole thing clears
09:35
up so that’s anyway that’s the saw the
09:43
value of powers it took until it till
09:46
the Austrians another economist 1871 the
09:49
margin utility theorists around 1871 to
09:53
solve this paradox support margin
09:57
utility school for a hundred years
10:01
economics have been misled by adam smith
10:03
and others cut coal of sac but they
10:06
couldn’t analyze consumers behavior can
10:07
analyze consumer action because they
10:09
couldn’t understand the value of paradox
10:11
and allow that and left themselves wide
10:13
open for left us to say well gchat
10:15
horrible thing and there’s no conflict
10:18
with in production for proper
10:19
introduction for use profit is what
10:21
propyl is what’s most useful consumer
10:23
most valuable and amanda’s highest will
10:25
get into the man’s be all along anyway
10:28
that’s solve the value of paradox ok the
10:38
other thing about exchange i’m going to
10:40
mention before the other thing about any
10:41
exchange that takes place in the market
10:43
is that people would only exchange
10:45
because it’s more valuable for they
10:46
prefer what they’re getting to what they
10:48
give up they prefer the marginal units
10:50
in other words you work you’ve changed
10:53
your labor service of 40 hours a week or
10:55
whatever for certain time money or
10:57
change money four loaves of bread or or
11:00
stereos or whatever you’re doing that
11:02
because you prefer the value you’re
11:05
getting for what for
11:07
the value of giving up an exchange so
11:09
each step of the way each kind of
11:10
exchange is made on the market all
11:12
millions of literally millions of
11:13
exchanges benefit both parties to the
11:16
exchange there’s also very important
11:17
concept as I mentioned the last time I
11:19
reiterate it both parties they’re really
11:26
what we have is a latticework of two
11:28
personal exchanges in the market we have
11:37
as always for every unit exchange a unit
11:41
exchange there’s a two people or two
11:44
groups and two commodities including two
11:47
goods and services in other words if I
11:50
go downstairs and buy a newspaper I by
11:52
the post then you have to thing you have
11:56
me and the news dealer and I give them
12:01
newsday like 30 35 cents yeah and I get
12:05
the post all right so I’m getting both
12:07
of us Benefit Exchange I give up to 35
12:10
minutes I’m and you’re getting the post
12:12
more than getting on the 35 cents the
12:14
other hand of course the news dealer
12:15
values were 35 sounds a lot more than
12:17
the pot was he need with 500 325 posts
12:21
pretty obvious within his situation but
12:24
any rate both of us then benefit each
12:26
each unit Exchange has two people and
12:28
two and two commodities or to serve good
12:31
deserve one and the money economy money
12:33
is always one part of the equation here
12:37
money is exchanged for the purpose for
12:39
other things so that if you work for IBM
12:41
/ you’re graduating work for IBM you’re
12:43
changing your labor service for salary
12:46
for money so that’s again a situation
12:48
with you and IBM looks license you know
12:51
I be amazon a person that acts as a unit
12:53
the situation so you have a money and
12:56
then labor service neha and change for
13:01
it to each step of the way and it’s
13:02
latticework of exchanges is a both
13:04
parties benefit otherwise they wouldn’t
13:07
make me change into something else they
13:10
go home they make some other exchange
13:12
they keep their money they go they go to
13:15
bahamas or whatever ok we now get to
13:20
the most important and talk about the
13:22
demand curve last con we get to the most
13:25
important property of the demand curve
13:27
the only property which really is
13:28
important in our FAQ remember that the
13:34
man Kerr is falling it’s all we really
13:36
know about it so you have on a y-axis
13:40
you have price and the x-axis you know
13:43
quantity and the man curve tells you
13:47
it’s really a demand schedule to
13:48
geometric representation of the man’s
13:51
schedule tells you Anna at this price
13:53
how much will be boy the price of Wonder
13:55
Bread of 10 bucks a loaf this much a
13:57
week border price and fight all of us
13:59
much whatever and you get something like
14:02
that okay in other words the cheaper the
14:05
price the more will be purchased you
14:08
have a demand curve which sloping so
14:11
cold calling to man Carter maker which
14:13
sloped downward to the right you don’t
14:15
know how its slope you don’t know the
14:16
exactly how you don’t know the clinic
14:18
you don’t know if it’s steep or shallow
14:20
or flat only knows of its boy another
14:28
important property is a demand curve is
14:31
how much if this is like a freeze-frame
14:35
situation telling you what’s in the mind
14:37
of consumers but you don’t know that a
14:39
man car who knows you don’t really know
14:40
what you know that it’s falling there’s
14:42
no way to have an x-ray machine of the
14:44
minds of every consumer figure out who
14:46
frees today in finite walk see what will
14:48
the man how much will they buy the
14:49
different prices but what you do now as
14:53
I say is that this it is falling if so
14:56
there took the property is important
14:58
property demand curve is if you change
15:01
the price let’s say if you cut the price
15:02
from here to here how much will the
15:05
quantity increase in other words or at
15:09
least in what direction we know what
15:14
will increase we don’t know about how
15:15
much if it increases just a little bit
15:17
you have a steep curve here what see it
15:23
can either do that or can increase a lot
15:25
we have a much flatter curve I given the
15:29
same point now there’s this this
15:33
this property the man curve is called
15:35
its elasticity once again its borrowing
15:41
the prestige of physics where the where
15:47
the question of example is you put a
15:49
certain different weights spring how
15:51
much will the spring give now there are
15:57
the two different kinds of definitions
15:58
we also see one con which is a textbook
16:00
definition has nothing wrong with it
16:02
just kind of irrelevant that’s that’s
16:04
the they go through a whole formula
16:06
namely you take the percentage of the
16:09
quantity change in other words if this
16:11
is let’s say this is a place of the ten
16:14
percent drop in price if this is a forty
16:17
percent increase in elasticity then you
16:19
have all these ratios at separate courts
16:21
calling you last the very elastic curve
16:23
if on the other hand you a ten percent
16:25
Robert price and quantity only goes up
16:27
by five percent it’s obviously very
16:28
inelastic so the more elastic is how
16:31
much more give there is no is how much
16:34
the quantity will increase it for the
16:36
price fool the reason why it’s
16:38
irrelevance nobody knows anyways but
16:39
then it’s also the really important
16:41
thing its quality a really important
16:43
thing for the businessman for the
16:44
industry is will total revenue go up or
16:47
down so they really care about if I cut
16:48
the price what’s going to happen to my
16:49
total revenue that’s what I want to
16:52
focus on here now the total revenue
16:58
business business income net income okay
17:01
is total revenue minus total cost this
17:05
is a very simple five you out way of
17:06
looking at it basically it is how much
17:07
money do you take in a year over the
17:09
transom or over the cash register or
17:12
whatever how much money did payout you
17:14
take in a hundred thousand a year you
17:18
pay out eighty thousand total cost is
17:21
your net profit of Tony found actually
17:23
really good shape if on the other hand
17:27
you told revenue 60,000 eai 80,000
17:30
you’re a pretty poor shape need you
17:32
suffer net losses of 20,000 so therefore
17:37
total course we’ll get to later on on
17:39
the course but right now we’re focusing
17:41
on total revenue from your port total
17:44
revenue is of any firm
17:46
any person there is equals the price of
17:50
anything times the quantity sold p times
17:53
q let’s take gun let’s take our Wonder
18:08
Bread example okay the curve is based on
18:15
us on the schedule and let’s say the
18:16
price is the price of 10 bucks a loaf
18:18
you have very few loaves so say a
18:20
thousand thousand very wealthy Wonder
18:23
Bread freaks okay so you have a total
18:26
revenue then of peak times Q equal T are
18:29
you so put ten bucks all of you so love
18:33
thousand those you get ten thousand
18:34
dollars over very simple concept simple
18:36
but important if the price is one’s all
18:40
he might be selling a hundred thousand
18:41
loaves so then your total reviews
18:43
$100,000 the price is a nickel a loaf oh
18:47
no you might be selling let’s say five
18:53
hundred thousand it what’s that that’s
19:01
5,000 alarms so then it anyway that
19:04
gives you an idea you take the price per
19:07
per unit multiply the number units so
19:10
and get your total revenue okay so what
19:13
we’re interested in here is what happens
19:16
to total revenue when let’s say this is
19:22
the man curve here okay here’s pricing
19:35
the y-axis quantity in the x-axis if
19:38
this this is certain amount of price if
19:44
this is one point out of the man curve
19:46
it means that the price is whatever this
19:48
is let’s say ten dollars like a low for
19:51
ten all the case or whatever happens to
19:52
be times a thousand that means the total
19:57
revenue is this is the
20:00
geometry of the total revenue of the
20:01
total area what’s the price times the
20:06
quantity then what happens to you lower
20:07
the price if the case of one of us can
20:12
be huge increase closes at ten yeah huge
20:15
increase in and total revenue other
20:18
cases could be first only even lower
20:20
total revenue if you have a relatively
20:22
flat curve like that and wind up let’s
20:25
say from here to here for the new total
20:30
revenue which would be a lot bigger
20:32
other words in this diagram here I’ve
20:36
postulated a fallen price leads to an
20:40
increase in total revenue increasing TR
20:54
0 and then looking at this is nine
20:57
dollars of something whatever it says if
20:59
you go back square the reverse happens
21:02
other words you increase you start with
21:03
here you raise the price in here you get
21:05
a big drop in total revenue ok so this
21:07
is the other side of the coin given the
21:10
same two points so here you have a rise
21:14
in price leading to a fallen total
21:19
revenue this situation whenever one of
21:21
demand curve is in this situation it’s
21:23
called an elastic demand curve in that
21:25
zone in that region because it can
21:27
change for me it does change all the way
21:29
up and down the curve but you have here
21:32
this is a definition of the elastic
21:34
demand curve other words the key thing
21:37
I’m focusing on here is the direction
21:39
what happens is whole revenue well the
21:41
change in price if we cut the price if
21:43
the if in other words quantity increases
21:47
like a greater proportion you have an
21:48
increase in total revenue that’s an
21:50
elastic demand curve raise the price
21:52
then you have a full in total revenue so
21:56
some critics the main current via last
21:58
thing you can’t decide it’s not easier
22:00
forecast in advance what the man curve
22:02
was a maker will be go change across the
22:05
zone and can be different for different
22:06
things usually it’s instead of a week as
22:11
a inelastic America is not necessarily
22:13
true
22:13
many right so that’s an elastic demand
22:19
curve the other hand if you have an egg
22:22
curve which is relatively cheap and goes
22:25
like that but fall in price then you
22:29
have you have this total revenue the new
22:34
total revenue area will be smaller other
22:37
words the increase of quantity is not an
22:39
awful not enough to offset the drop in
22:40
price so result be a lower demand you oh
22:44
we’re total rubbish like I even clearer
22:46
in here just like that so in this
22:52
situation situation where falling price
23:01
leads to a full drop them full and total
23:05
revenue or looking at again the other
23:08
way around if you raise the price from
23:10
here to here you got an increase in
23:11
total revenue so that’s rise in price
23:16
this is something it isn’t been a very
23:18
interested and I don’t care that much
23:19
about the percentage of the amount of
23:21
Allah the formula they care about what
23:23
happens to the damn total revenues okay
23:25
so this is because in the real world
23:27
business men don’t know that madman cars
23:28
are not listed on the book for them they
23:30
have to try to find out it’s not easy to
23:32
find out it’s part of the job of the
23:34
intrapreneur businessman try to figure
23:36
out what’s going on okay so rise in
23:38
price leads to them an increase in total
23:41
revenue this situation is called an
23:45
inelastic demand curve inelastic so in
23:50
other words we were setting up here a
23:52
new definition I mean elastic and
23:56
inelastic instead of concentrating at
23:57
percentages I’m saying is if the country
24:03
in the direction of total revenue if the
24:05
total revenue increases in the fall of
24:06
the Fallen price inelastic demand curve
24:08
if it drops to the forum price inelastic
24:10
demand curve and vice versa if you ever
24:13
if it increases the total revenue falls
24:16
off an increase in price you have a
24:19
elastic demand curve if it goes up with
24:21
increasing price you have an elastic
24:22
America
24:26
so what can we say about when things
24:28
will be elastic or inelastic well one
24:31
thing we can say that other things being
24:34
equal given the range of choice I mean
24:37
the larger range of choice illegal more
24:39
greater elasticity in other words let’s
24:43
say this is the let’s say this is the
24:49
back of all wonderful that example
24:51
here’s the price of one regret saying
24:53
the buckle loaf and let’s say mr.
24:58
wonder you’re choosing huge increase in
25:01
price it’s gonna sales gonna fall from
25:06
endlessly because all the other breads
25:07
remain the same price Rose Brett
25:09
everything’s is up buckle over so he’s
25:11
raising his price that fight all of 10
25:13
oz Elohim he’s a tremendous falling on
25:15
means the man car was very elastic for
25:18
Wonder Bread so you have a big falling
25:21
off and total revenue so that’s one of
25:26
the reason he’s not going to do it has
25:27
if he’s saying on the other hand if all
25:30
the breads go up together for one reason
25:32
or another but some some kind of a
25:33
situation all red prices go up to two
25:35
bucks that’s a different story then
25:37
they’ll still be a falling off but
25:39
people won’t be able to shift out fast
25:40
from want them I don’t wonder bread into
25:43
pepperidge formula will be going up so
25:45
in that situation be much steeper it
25:47
could still be elastic would be less
25:49
elastic then fresh given firm York
25:53
shipping brand same way on the way down
25:57
if you have a wonder if this room wonder
26:05
cuts this price all the others remain
26:06
the same he’ll pick up a lot of sale you
26:08
got to be real lasting demand the other
26:11
half Allred prices go down I’ll pick up
26:13
some but not as much so one thing we
26:16
could conclude from this is that the
26:18
demand curve in all cases growth of how
26:20
elastic demand curve is the man curve
26:23
for the firm any given firm is more
26:30
elastic than the man curve for the
26:33
industry as a whole unless of course
26:35
there’s only one from the industry which
26:37
case is the same thing so
26:40
more elastic than that’s man for the
26:43
industry when you this sets up a
26:49
temptation in the case of there’s a big
26:52
gap and we’ll see we’ll see later on as
26:55
various reason why demand curve for
26:56
every firm is going to be elastic we’re
26:58
also our mothers elastic but some demand
27:02
curves for industries are inelastic
27:03
somewhere elastic when you have a big
27:06
gap between the two of them and say the
27:08
man curve reached firm is quite elastic
27:11
the manner of Industry the hole is
27:13
inelastic it sets up a temptation for a
27:16
cartel agreement among the firm’s
27:18
because it means they get together I’ll
27:20
get to that later on get the monopoly
27:21
but and get together and agree to cut
27:23
production raise price the old benefit
27:26
all the firms will benefit kernighan I’d
27:28
say they raised price by twenty percent
27:30
I production gets cut by ten percent I
27:31
guess they pick up more total revenue
27:33
but it’s only if each firm will keep the
27:35
agreement as I’ll point out later on
27:37
course their next rrible conditions on
27:40
the free market as a leader were
27:42
breaking up and right quick breaking up
27:43
all cartel agreements the only reason
27:47
why you’re only reason why cartel
27:51
agreement ever remains in actions
27:53
because government forces on the
27:55
government steps in what’s the matter on
27:57
it there better close the door what god
28:10
you only have a few minutes eat your
28:12
class the next term expects our I saying
28:15
well I’ll bless them ok so the where was
28:22
i ah well that’s all you mad bro tell ya
28:29
so it’s a cartel the only time a cartel
28:32
will last for any length of time is when
28:35
a government stuff sentence forces that
28:36
prevents new competition from coming in
28:38
prevents anybody from breaking the
28:40
agreement and this is what’s happening
28:42
Europe a lot of mort’s home we’ll get to
28:43
that later just a teaser on cartel this
28:46
is up sets up like a big gap between the
28:49
industry demand curve of the furnham
28:50
anchor have sets up the condition for
28:51
Lisa temptation
28:53
that sort of agreement all right okay
29:00
now there are some man all these only
29:03
the men curve they might look flattered
29:05
or steep but you can only tell the
29:08
relative velocity when they’re from the
29:10
same point if you have this kind of
29:12
situation and going down from that price
29:15
you have a flat curve isn’t a steep
29:17
curve you know this is more elastic than
29:18
that but if you have you just look at a
29:22
curve like that I’ll look at that it’s
29:27
not necessarily true that the beat the
29:29
smoke this will be more elastic
29:30
throughout the entire range matter of
29:31
fact when you get up high enough in this
29:33
thing will be elastic even even the
29:36
steep you get to the point finally where
29:38
people can’t afford to buy more whatever
29:41
it is the price goes up even if it’s
29:43
something which is in a laughing that’s
29:45
a week or something like that so well
29:47
you can’t you can’t gauge by looking at
29:50
it the only gains by looking at the as a
29:53
focal point here and looking at it what
29:55
happens when you go up or down from that
29:57
point where they have a common point so
30:00
as I say these elasticity will range
30:02
over the stiffer over the range of each
30:05
curve except for three curves which are
30:07
hypothetical recovery well usually never
30:09
exist the only cases where the el-sissi
30:13
is constant throughout the entire range
30:14
of a curve those of you are
30:15
mathematically inclined will see the
30:17
reason for this free curd one is the
30:24
situation where you have a absolutely
30:26
horizontal demand curve we’ve already
30:28
seen you can’t have it one of my big
30:30
pipes with later chapters on simple
30:32
perfect competition or ain’t no such
30:33
thing but man curve always has to be
30:35
forward if you had an instant this is if
30:38
you ever had this crazy situation where
30:40
means you can produce as much as you
30:41
want still have the same solo the same
30:43
price this would be an infinitely
30:45
elasticity e epsilon fireplace epsilon
30:49
will be in infinite size throw out the
30:55
entire range of a curve the other hand
30:58
if you had a vertical romantic are
31:01
absolutely vertical all so much can
31:02
exist we’re already going to require
31:05
while explaining that you nuts
31:07
zero throughout means we’re all so what
31:09
happens you never have a change one way
31:12
or the other in the Quantic again absurd
31:13
this is mathematical extreme cases
31:16
another point another costly elasticity
31:19
which is not absurd just is that
31:22
whatever happens I mean extremely
31:23
unrealistic let’s put it that way the
31:26
situation where the main curve is a
31:29
rectangular hyperbola those are like
31:30
that such that the total the total
31:35
revenue is always constant in other
31:37
words the area under the curve always
31:38
constant like that regardless of what
31:43
the prices the tumors always found the
31:45
same amount of money that could happen
31:47
it could even have us for certain
31:49
individual ranges but there’s no reason
31:50
assume that happens means there’s no
31:52
evidence whatever happens in whatever
31:53
but that it’s not a logical it’s not
31:55
absurd like those other two cases oddly
31:58
enough from in the history of economics
32:00
the managers first come in about
32:02
nineteen twenty for about 25 years or so
32:06
the textbook demand curves were always
32:08
like this totally insane situation this
32:11
is the way it was shaped and so they
32:14
were assuming at all the time that
32:15
really seems away the whole point which
32:17
was changes in the elasticity or changes
32:19
in total revenue it’s a very weird kind
32:21
of assumption if finally in 1943 or so
32:25
hussar stiegler with young economist
32:26
then wrote a price theory textbook yes
32:29
it’s not recall had a medium at micro
32:31
and he since has gotta know about prize
32:34
either anyway you start talking subway
32:35
why are these like this there’s no
32:37
evidence for this no reason for just
32:39
sort of fashion and he says the hell
32:40
with it ridiculous not to make it a
32:42
little straight line so from then on the
32:45
man all the man curves in fact i live in
32:46
straight lines at least you don’t have
32:48
the assumption of constant total revenue
32:50
the other hand there’s no evidence a
32:51
straight line either I guess it’s purely
32:54
for convenience so pretty these would be
32:56
like that no evidence for her to say a
33:01
lot so it’s still I’m I think one
33:04
McKenna wrong McCluskey sort of a
33:07
maverick type very interesting economist
33:08
cover have a nut very interesting he has
33:11
a textbook now recently on Mike for
33:14
intermediate micro he has the magter
33:15
like that well okay I mean by I think I
33:18
feel prefer using a straight lines more
33:19
simple
33:20
what I always keep in mind that this is
33:22
only for convenience it’s so that see
33:24
what happens later on on the course they
33:26
start using tangency there were also
33:28
some very important conclusions from
33:29
nonsenses no reason the names straight
33:31
line it can be tangent okay so then
33:34
you’re right just keep that in mind what
33:36
happens in economics has has happened
33:40
for many years now is that the they
33:41
start using math or diagrams of the
33:44
convenience that serve a graphic
33:46
illustration of economic concepts and
33:48
after about some years of doing that
33:50
they start thinking of the the grass as
33:52
the ends in themselves and it forget
33:54
about the economic they start talking
33:55
about engine seized and all sorts of
33:57
other stuff so we kind of keep close to
34:00
Earth here any right this is the so the
34:05
elasticity is a major property of demand
34:08
curve is that you either elastic or
34:10
inelastic which means you have a
34:11
situation where total revenue either
34:14
falls or increases which changes in
34:17
price index I was obviously extremely
34:18
important businessmen trying to figure
34:19
out what’s going to happen in the real
34:21
life there are no given the man curve
34:23
this is a real human cost curve later on
34:25
this is not trying to find out what will
34:27
happen if they raised the price I lower
34:28
the price and it’s a trial and error
34:31
kind of procedure and it’s much much of
34:34
a hunch and based on their intuitive
34:35
insight into the market which is
34:37
prophase on knowledge but I mean it
34:38
based on a sort of knowledge economist
34:41
don’t have is we’re not in li in the
34:43
whatever the fish market of a computer
34:46
marker over it each market is different
34:48
as different people and different also
34:49
some stuff going on dynamics but you
34:51
only people involved then I can figure
34:53
out what’s going on so uh okay I think
34:57
that’s enough for today

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