Introduction to Microeconomics – 3 of 14 – The Determination of Prices – Murray N Rothbard

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

3. The Determination of Prices

Price is determined by the equilibrium price and the equilibrium quantity. If your good is not selling, you lower the price. If your goods fly off the shelves you are selling too cheaply and you raise prices. Demand changes constantly, e.g. the shift to white wines away from dark hard liquor. Prices will fall when demand falls.

Part 3 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 – 3 of 14 – The Determination of Prices – Murray N Rothbard – YouTube

http://www.readrothbard.com/introduction-to-microeconomics-3-of-14-the-determination-of-prices-murray-n-rothbard

TRANSCRIPT

00:00
sum up quickly what we’ve done so far we
00:02
have a law of diminishing marginal
00:03
utility fact if you increase more radio
00:09
your supplied you have any product lower
00:12
the value of each unit and that we saw
00:16
the value of paradox why there seems to
00:18
be a difference between youth value in
00:20
exchange value it really isn’t and we’ve
00:23
got the content of the Alexis and while
00:25
they’ve got the full and demand curve
00:27
like so when you got the concept of
00:29
elasticity of the man curve and what it
00:31
means so that the man curve is very
00:35
inelastic it means that if you total
00:38
revenue will decline as the price goes
00:41
down and go up as the price goes up if
00:44
you have a flattish or more elastic
00:46
demand curve amines a pice goes down
00:50
total revenue goes up and vice versa
00:52
he’ll run you a full one applies to me
00:54
Ice goes up so hustling that’s a basic
00:59
concept what happens the total revenue
01:01
when pisces and pisces okay we now let’s
01:05
see there was something up I was going
01:06
so far you’re not go from that for the
01:10
key point of microeconomics I mean how a
01:12
price is determined why are why is it
01:13
price what it is why is the prices coil
01:17
whatever it is why the type of Wonder
01:18
Bread whatever it is why is the wage
01:20
rate you can see you get later on
01:21
whether they’re all prices on the market
01:23
and every sister of millions of
01:26
exchanges in each exchange has different
01:28
terms of exchange each exchange as a
01:30
price there’s money to sense a male 50
01:36
cent for a dove bar how did they do it
01:38
for TV said whatever happens the beat is
01:40
these are prices and we now he got to
01:43
the question and what the terminal
01:45
prices and contrast people don’t know
01:48
any genomics there’s it’s not chaotic
01:50
not purely it’s not arbitrary it’s not
01:52
chaotic there are definite reasons
01:54
factors of the sermon prices and the
01:57
basic if you’ve got two things you’ve
01:59
got there’s price on the y-axis so any
02:05
particular good or service quantity on
02:08
the x-axis you have your fooling demand
02:12
curve which we’ve already too
02:13
that much we know about falling it might
02:15
be in a laughter in my view is sick now
02:19
they’re on the then we have a supply of
02:23
a good in other words how much is there
02:25
forget about the text bubble teas for
02:27
the rising supply credit supply is
02:28
vertical there’s any given time in any
02:31
given moment any given freeze-frame now
02:34
a certain amount of stuff there why it’s
02:36
there we going to do later what’s what
02:38
determines why they say there’s a
02:41
hundred thousand loads of wonder bread
02:42
right now in New York I don’t know how
02:43
many there are but let’s say hundred
02:44
thousand loaves we need to be sold my
02:48
case we don’t know how many they’ll be
02:50
next week or next year talk about that
02:51
later right now at this moment we need
02:54
to be solar to supply a hundred thousand
02:57
blow some vertical supply line this case
03:00
on the south of course this quantity is
03:05
going it increases as you go to the
03:07
right this is zero and keep increasing
03:09
to go this way so now we have a vertical
03:13
supply line we’ve got a demand curve
03:15
which is falling and we have an
03:18
intersection point and the when I’m
03:22
going to prove now I’m going to make the
03:24
statement I improve their just making a
03:26
flat statement I’m going to prove now is
03:28
the most single single most important
03:29
thing in the course namely at the price
03:31
of anything if I have any good or
03:33
service from any at any day any time
03:36
will tend to be the intersection point
03:39
of the demand curve the supply line if
03:43
it isn’t at that point it will pen
03:45
rapidly toward it okay so this is what
03:48
demonstrate all right supposing this is
03:51
anything longer of reddits it’s fish
03:53
it’s I fice that this nail doesn’t make
03:56
any difference let’s say at any given
03:59
day we have so we start the day with at
04:01
this point let’s say the prices with one
04:07
of us a dollar fifty olo start to the
04:10
dolphin feel oh oh and a dollar fifty a
04:16
loaf this much will be will be bought
04:20
that’s where we already determined that
04:22
the man curve tells you do me how much
04:25
the consumers will purchase
04:26
buyers will purchase any given price if
04:30
this point I’d say they purchase 70,000
04:34
well they produce a hundred thousand one
04:37
hundred thousand loaves ready to be sold
04:38
and only selling 70,000 in other words
04:41
what you’ve got is a gap between the
04:44
supplier ready to be sold and the amount
04:47
purchase of the man this is unsold
04:49
surplus in other words at this price the
04:56
supply is greater than the man the
05:00
amount of goods available to be so
05:02
greater than the amount purchased does
05:04
anything businessmen don’t like this has
05:07
been a motivating here by 12 very simple
05:09
motivation actually one can make as much
05:11
money they can to avoid losing any money
05:13
it was to maximize their profits will
05:15
avoid losses or minimize losses they’re
05:19
losing money by not selling this thing
05:20
they’ve bought the bread retail stores
05:23
are bought the bread and eat selling it
05:24
and they find out the only silly how do
05:27
you so long how do you sell on sold
05:28
surplus well I try it they lower the
05:31
price a little bit and by ghana they
05:33
lower the price they find that selling
05:34
more wonder bread or whatever else it is
05:37
your shifts or apples or whatever as
05:40
they keep selling it then they find out
05:41
the unsold surplus is gone and so they
05:45
keep keep lowering the price until they
05:47
get to this point here the intersection
05:49
point and as they do that they sell the
05:52
unsold surplus they probably wind up
05:54
here with supply and demand are equal
05:56
the only point at which the quantity
05:58
supplied if you supply a hundred
06:01
thousand this is exactly how much
06:02
consumers willing to bought hundred
06:04
thousand in other word you eliminate the
06:06
unsold surplus a terrible headache for
06:09
all business for any businessman by
06:11
lowering the price until you get to this
06:12
point you have a you have a built-in
06:15
mechanism sort of speak in them in the
06:17
market free market a built-in mechanism
06:19
driving the price down to the
06:21
intersection point because the higher
06:23
the price is the greater the unsold
06:25
surplus i’m going to say you keep you
06:27
keep lowering the price you find out by
06:29
trial and error tryna very quickly as
06:31
you lower the price is sell more tour
06:33
finally until service is eliminated on
06:37
the other hand supposing you start off
06:38
the day with a price
06:40
below the equilibrium price let’s say
06:41
this is a dollar they start at 75 cents
06:46
okay postally horizontal line here at 75
06:51
cents you can skew surely you sell a
06:53
home hundred thousand something else
06:55
happening here people are willing to buy
06:57
now because of the heavier you have a
06:59
falling demand curve the will you buy
07:00
hundred twenty thousand loaves they’re
07:02
trying to buy out in twenty thousand
07:03
loaves it can only find a hundred
07:05
thousand other ones you have a situation
07:07
the man being greater than supply what’s
07:12
also called excess the man you have
07:14
people find a finer stuff in a neat
07:15
there in other ways you have a
07:16
phenomenon empty shell where’s my Wonder
07:19
Bread gee we sold at eleven o’clock this
07:21
morning okay so what happens that is the
07:24
others were so called shortage so what
07:30
you have van is a shortage no work all
07:32
of a sudden my god we’ve so lap this man
07:35
realized my god we can sell out at it’s
07:37
cheap white let’s raise the price why
07:38
are we losing money on this thing before
07:40
going on a money and they find out as
07:42
they raised the price the shortage is
07:45
getting progressively eliminated so
07:47
finally you get to the intersection
07:48
point there ain’t no more shortage
07:50
shorter disappears they make a lot more
07:52
money that way obviously much better for
07:54
business man is so hundred thousand
07:56
loads of the dollar in the cell hundred
07:57
thousand at 75 cents so what you have
08:02
then in the market every paisa lamarca
08:05
the entire market economy the reason why
08:07
it works I mentioned I think before the
08:09
last week it always works my more always
08:12
works meaning there’s never any shortage
08:13
another numbering it’s any surplus in
08:15
other words never any unsold starbuck
08:17
for any length of time this appears very
08:18
quickly never any shortage disappears
08:20
bubble even reasoner the price prices
08:23
are flexible and the motivation to
08:26
arrive at the see that this intersection
08:28
point is trying to increase your profits
08:30
a tunnel avoid losses and by doing that
08:35
the free market economy is such a Joe it
08:37
always wipes out and very quickly wife’s
08:39
at old shortages a little surplus that
08:41
you always line up at the people Librium
08:43
point it’s call an equilibrium point
08:45
intersection point intersection price is
08:48
so it call equilibrium price reasons
08:53
call equal
08:54
rim once again an analogy with physics
08:57
physical sciences something is an
09:01
equilibrium when it tends to stay there
09:03
and if this place from that point will
09:05
return to it quickly okay so that’s
09:07
exactly what happens to you in this case
09:09
is a pretty good analogy well I’m not a
09:11
fan of physical analogies and economics
09:14
in this case is pretty good one namely
09:15
that it tends to remain there if if this
09:18
place forming it goes back and goes back
09:20
very quickly they do that banquet I’m a
09:22
day to day basis so driven by profit
09:27
motive and remember with a free little
09:28
flexible free pie that the price is free
09:30
to change it was a legal reason not to
09:32
change the law against it we’ll get to
09:35
that pretty soon then the market economy
09:38
is such with prices always reflect
09:40
always equate supplying the man in other
09:44
words they make supplying a man equal
09:46
this is also called clearing the market
09:49
in other words clears the market of any
09:53
unsuccess supply or unsold surplus and
09:56
have any excess the man or shortages and
10:03
already you see why it is saying a
10:06
market economy never had any surplus our
10:07
shortage in a so-called planned economy
10:11
and social it’s the economies of
10:12
semicircle economies one of the great
10:13
feature great one of the important
10:15
features of them as constant problems of
10:17
shortages and surpluses I remember and
10:21
this is not particularly important I
10:23
just sex in mind why member news we can
10:24
mention that many years ago all of a
10:26
sudden in Russia they had a toothbrush
10:27
shortage who part waifu for a shortage
10:30
well the bristles weren’t omps can the
10:32
handles were in pumps and somehow they
10:35
they didn’t they never mesh the two
10:37
things that’s the Fergana whatever it is
10:40
overlooked and they couldn’t they have
10:41
the bring that couldn’t bring the
10:42
bristles and the handles together it
10:44
took weeks or month to do it so this is
10:46
uh this is just typical constant series
10:50
and so-called planned economy
10:51
unexplained shortages how come there’s
10:54
no Hershey bars today no no um whatever
10:57
okay so this is and you’ll see later in
11:00
countries which have a lot of price
11:01
control maximum price control which will
11:02
get to a little later as only shortages
11:05
to and if you’re in a price
11:07
type countries wise if you find anything
11:09
in like another shelf of I’d much as you
11:11
can Ivan hoard it ain’t going to see it
11:14
very often in front of my you teach in
11:18
Vancouver British Columbia has severe
11:20
price controls he’s a great fan of
11:23
Hershey chocolate syrup it works a very
11:24
bad boy is another point yeah so any
11:27
time you see her she troubled show up on
11:28
Silva’s and the shelves man could we
11:30
buying 20 cans if you go go to visit
11:33
them open us cover and there’s a 50
11:35
can’t appreciate you can quote syrup and
11:37
almost nothing else I me right well
11:40
guess we’ll get to that little later
11:41
yeah we may coexist this is just so you
11:47
can’t make it up in the air to clear the
11:49
market just stays at the beacon at the
11:52
controlled price yeah I’ll get to that a
11:56
little bit late I don’t want to right
11:57
now I want to point out hands of the
11:58
free market I’ll get back to that length
12:00
they’re stuck either below or above free
12:04
market price exactly then you have black
12:05
markets not alter the weather phenomenon
12:07
typed by sure yeah anyway this is just a
12:10
teaser for later on a little bit later
12:14
fine i just want to show what happens
12:16
with a free market for units of
12:17
government intervention so as you see is
12:20
that there’s a both so everybody is
12:22
cooperatively collaborating you trying
12:24
to get up these early it’s an
12:25
equilibrium price and because this is a
12:30
benefit of everybody especially
12:31
intrapreneurs here to try to get
12:33
eliminate shortages or surplus and so
12:36
this is a built-in mechanism to get here
12:39
and it’s the end of stay there again
12:41
here what you’re displacing it back to
12:42
it okay so now we have important truth
12:46
great a single yeah they know there’s no
12:54
one so so for those other words yeah oh
13:00
wait you finance trial and error in
13:02
other words you set up price you don’t
13:04
know what the what’s going to happen if
13:06
you find out let’s say a new thing is
13:08
thing whatever it is thingamabob is
13:10
producing you set the price of eight
13:12
eight dollars you find out nobody buys
13:14
it you go back you lower the price and
13:18
if you finally get to the point where
13:19
people only vital
13:21
below costs than you know if you’re out
13:23
of business by the site me I know that
13:25
you’re making some minimal losses and
13:27
that’s it definitely other hang you find
13:28
a lot of people died for filing your
13:31
happy together fine ology it’s sort of
13:32
testing you find out geez the shelves
13:34
are running out you know although they
13:37
disappear fine i’ll be wiser the six
13:39
means that there’s no there’s no magic
13:40
formula you know the thing to keep
13:42
emphasizing it it’s not like in a
13:44
textbook when you’re given the demand
13:45
curve nobody knows with a man curve is
13:47
they’re trying to find out especially
13:48
the new product is very difficult and
13:49
put other for you have competitors and
13:51
they’re trying to find that you wind up
13:52
and kind of process you settle on an
13:55
equilibrium point so i say the the great
13:57
test immediate test mainly if you find
13:59
out nobody is a big unsold surplus you
14:01
know the price is too high if your
14:03
finance as a shortage no other thing
14:06
disappears quickly then you’re it’s
14:08
obviously a signaling you raise the
14:09
price down and a problem so that’s
14:12
that’s the immediate feedback yet
14:14
whether stuff is not being sold this is
14:17
true not just for consumer goods are
14:18
also producers goods no down the line
14:20
introducing little material or something
14:22
you find out you’re not something so you
14:24
have to lower the price yeah ah while
14:37
we’re dealing with the what why wouldn’t
14:40
you why use at some point i see they’re
14:49
losing money by have you produced the
14:50
surplus and then that’s sticking to in
14:53
other words if they’ve already produced
14:54
this thing whatever it is the benefit by
14:57
any sale of it I mean maybe in the
14:59
future loss that would even a copper do
15:00
we’re going to do less tap a higher
15:02
revenue once you produce it and you’re
15:04
stuck me more you spent the money on
15:05
this thing you probably gets all
15:06
equipment you can it was nobody’s gonna
15:09
benefit by piling up on Sol wonder bread
15:11
or unsold TV sets no that’s what you’re
15:14
talking about as a future it’s a
15:16
decision of how much you produce in the
15:18
future it work right now we’re talking
15:19
about a day-to-day situation once given
15:21
the amount produced what happens what is
15:24
the price set we’ll get to that later on
15:26
an aside what’s going to be how much to
15:28
produce for next year next you next time
15:31
period
15:37
ok the so then we so we have this
15:41
built-in mechanism for for arriving at
15:45
the free market price and it will be the
15:47
intersection point and then the question
15:58
is well if this is true I think it is
16:00
why do prices ever change why isn’t
16:03
every price the same forever now
16:05
obviously the reason why prices are
16:06
changing wonderful one of two or two
16:07
reasons or both mainly either the man
16:10
curve changes or supply changes the only
16:12
way in which any price can change over
16:14
time is a change in one of these two
16:17
underlying factors or or both because we
16:20
in order to analyze bugging out there
16:21
like each one obviously you just combine
16:23
them ok let’s look then and what happens
16:26
with supply changes easier for example
16:30
let’s take let’s say every usually about
16:33
every five years as a big frostin Brazil
16:35
which is our major coffee producer and
16:38
big froth and it killed half of coffee
16:40
plants all right so the big drop and the
16:43
supply of coffee in other words how much
16:44
coffee comes on and look at say next
16:46
month or whatever so the supply curve
16:48
shifts to the left in them I’m making us
16:51
dashed nor shows a change here so you
16:57
have a drop of lowering of a supply of
16:59
this product what happens means of the
17:03
old price the only equilibrium pilots
17:05
they used to be obviously a dollar a
17:06
pound not going to go away not too long
17:08
ago and the means that the old price
17:15
bunch of supply is suddenly lowered so
17:18
it means that the with a new supply you
17:19
know you now have a shortage know where
17:22
the man which used to be used to be the
17:24
demand and supply we’re cleared of the
17:27
dollar a pound all of a sudden you find
17:29
simple supplies then lowered ah that
17:32
almost thing you find in the shortage is
17:34
open up shortage there’s now a situation
17:37
where people can’t find the product at a
17:40
dollar a pound so the price goes up the
17:42
prices bit up by the buyers so finally
17:45
it reaches whatever it’s a dollar fifty
17:46
of hand
17:47
and the new equilibrium price again
17:51
clear the market in other words the man
17:52
again this becomes excessive mana mana
17:56
supply now cleared at the higher price
17:58
so a higher price clears the market how
18:03
this is this this demonstrates the two
18:06
functions the price system performs on
18:08
the market to function most people
18:10
understand one function they don’t
18:11
understand the other one of the
18:13
incentive function we’ll get to that
18:14
later on in other words if the price is
18:17
higher people will produce more you know
18:20
over the time of a longer run so if you
18:24
offer i’ll just give you an idea these
18:27
they used to they used to be 1948 i
18:31
think is 48 and when the there’s only
18:34
one atomic energy consumer namely US
18:36
government and i think it’s called the
18:38
Atomic Energy Commission that so trying
18:40
to find uranium there’s a quote uranium
18:42
shortage couldn’t find any Iranian
18:43
ladies they’re going crazy can’t get
18:45
free after your dream is gone we can’t
18:47
believe anymore atom bombs world’s going
18:48
to come to an end or whatever aside from
18:50
whether or not they should be producing
18:51
more in a mom another philosophic
18:53
question some economists down there
18:56
finally said look look turkeys double
18:59
the price you’re offering only one will
19:01
buyer the US government your offering
19:03
whatever was per ton of uranium double
19:06
the price to see what happens they
19:07
double the price and all of a sudden
19:08
everybody’s out there with a Geiger
19:09
counter for famous uranium boom I don’t
19:12
know West look I kind of bygone is only
19:15
your any ensure they found lots of
19:16
uranium and what we have to do is a
19:17
double the price offer and uranium
19:18
flowed in like nobody’s business the
19:21
stuff is out there whatever this stuff
19:22
is you have to offer a higher price will
19:24
induce them to go out and look for it
19:26
that’s any most people would sort of
19:28
understand it’s not everybody understand
19:29
so if you offer a higher price for
19:31
something you probably get more greater
19:33
supply and my subversive the thing they
19:35
don’t understand it all is that what you
19:37
call the rationing function in other
19:39
words the reason why everything any
19:45
everything has a price at all because
19:46
it’s not unlimited remember the
19:47
universal Bank of scarcity everything is
19:49
scarce some things are scarce or than
19:51
others if something or unlimited it be
19:54
free like air moonlight okay what are
19:58
used to be before water shortages
20:00
so it’s their quote free uncork almost
20:02
go close to it but coffee is not free
20:07
coffee it’s scarce like everything else
20:08
are the things that you produce coffee
20:09
are scarce if they get scarce sir for me
20:12
the price it works pricing performs a
20:14
rationing function pricing for pricing
20:16
of anything performs the function
20:17
squeezing out the submarginal buyers
20:19
people who don’t want to spend a buck a
20:20
pound I only drink coffee of has plenty
20:22
sense of that it’s not the dollar panel
20:24
bring something else water Coco whatever
20:27
it is so the point is the prices for
20:30
home a rationing function if the thing
20:32
becomes scarce so they have prices have
20:33
to ration even more and so by the price
20:36
going up it performs the function of
20:38
squeezing out some more to avoid
20:40
marginal buyers marginal buyer know that
20:42
those who are close to the edge of mine
20:44
coughing what happened a few years ago
20:47
this happened price of coffee double
20:48
almost overnight because it’s a big drop
20:50
of supply big increase in price and
20:53
people started buying they bought less
20:55
coffee almost permanently or they start
20:56
they cut the amount of coffee they drank
20:58
some people shifted permanently tutti
20:59
others the cocoa again than that later
21:01
too and result of all this was the
21:04
restricted voluntarily restricted their
21:06
purchase some people bought the same
21:07
manticore but some people with our
21:08
coffee freaks LOL i’ll spend more money
21:10
on it others however only marginal
21:13
coffee buyers may cut their consumption
21:15
so result of all as a voluntary
21:18
rationing process the other alternative
21:22
voluntary rationing is government
21:23
rationing which we’ll get to later to
21:25
the government orders gives you issues
21:27
tickets personally hire hundreds of
21:29
thousands of people issued ticket books
21:31
and of course all this stuff ration
21:33
books shaded they were in World War two
21:35
and everybody’s cameo you have only you
21:37
you know ten coupons a week to buy
21:38
coffee 10 pounds a week or something and
21:40
Dunn’s a whole hassle and then this
21:42
you’re in addition to paying for the
21:43
coffee and money you’ll have to pay the
21:45
ration tickets a total total mess any
21:48
rate but there is compulsory means you
21:50
buy more than 10 whatever it is five
21:52
pounds we were those in your illegal say
21:54
w.e legality and go to jail a voluntary
21:58
ism well the price system does it do
21:59
this voluntarily in accordance with each
22:01
person’s value scale orange with how
22:02
much they value coffee beezly everything
22:05
else okay so the price goes up as the
22:09
supply fools in other words look at it
22:12
this way
22:14
a drop and supply of X leads to an
22:17
increase of a place of X okay the
22:27
opposite happens San and economic self
22:29
almost all laws are symmetrical look at
22:34
the other other side of a coin here we
22:51
have coffees flowing back in you have a
22:53
big increase in coffee production the
22:55
climate’s better or whatever it is
22:56
anything if you increase fertilizer
22:58
different techniques so the supply of
23:01
coffee goes up this means that the old
23:04
price or demand and supply or equal all
23:10
of a sudden you have a bigger supply now
23:12
you have you have sort of X amount of
23:15
coffee have more than that it means of
23:17
the greater supply you have an exit at
23:19
the old price you now have a excess
23:21
surplus of unsold surplus of supply here
23:26
because supplies increase is still up at
23:28
this price it means in order to induce
23:30
people to buy more than whatever a
23:32
hundred thousand pounds of coffee
23:33
whatever happens to be your those people
23:36
are buying more you have to cut the
23:37
price and as you cut the price they are
23:39
now willing to buy the excess the
23:41
increased supply and so the price fools
23:44
to get back to New equilibrium point
23:46
we’re supplying a manner again equal so
23:52
this is another word you eliminate the
23:53
excess of line you wind up supply too
23:55
many and be equal so we conclude an
23:59
increase in supply of X lead to a drop
24:01
in the price now this is what happens of
24:06
course the coffee thing is a beautiful
24:07
example of this happens all the time of
24:09
the coffee the froth on the coffee man
24:12
brazil i think the drop on supplies an
24:14
increase in price and a couple years
24:16
later the source was gone supply
24:18
increases the price drops again so this
24:21
is almost a textbook case that happens
24:23
all the time all sorts of products
24:27
agriculture is the way of has a good is
24:29
a good example because agriculture you
24:31
have a you know full actual fault apply
24:33
I don’t have that much and other things
24:35
and most things supply increases you
24:38
know over time when agriculture sports
24:40
with you have the more it’s more the lap
24:42
of the gods and other products but in
24:47
general supply increases in general you
24:51
have an increase in five omens
24:53
everything in that case if that’s true
24:56
which it is you should have generally
24:58
falling prices in other word overtime
25:02
supply increases price falls by the way
25:07
this is not it’s not really the real
25:09
leader lower profits but its costs fall
25:11
so we’ll see you later on in other words
25:12
of the general increase in productivity
25:14
and cost for and so there’s no thicker
25:16
than you’re squeezing funds or anything
25:19
like that so you’ve got then situation
25:22
where most prices should be falling and
25:24
yet and yet of course as we all know
25:27
prices you almost always going up even
25:29
now and supposed to be the end of
25:30
inflation this is this is a macro we
25:33
discussed this in macro there’s any
25:34
metal concept but even now inflation
25:38
suppose be over its cool going out
25:39
prices is going out going up about three
25:41
or four percent a year this is when I
25:43
place you supposed to be over it’s over
25:45
only in the sense of five six years ago
25:48
prices are going up my fourteen percent
25:49
a year so how come if it’s true that
25:52
supply usually goes up how come prices
25:54
are going up that’s a good question the
25:55
answer is there’s nothing to do with
25:57
this good stuff goods are going out
25:59
increasing the answer is with money and
26:02
the fact that the manager is always
26:03
going up because the money government
26:04
printing money and pouring and pouring
26:06
into the system that’s let’s say a macro
26:08
a problem if we just up the micro prices
26:10
really be falling and in fact in general
26:16
from the beginning of the Industrial
26:17
Revolution in the word from about 1780
26:20
looks their 1800 until nineteen forty
26:25
prices fell all the time every year
26:27
prices look for a bit except during war
26:30
time during the war of 1812 the Civil
26:32
War the world war one and World War two
26:34
government print alot of money no to pay
26:36
for the war effort of course prices went
26:38
up all the other times I was during
26:39
peace
26:40
prices generally felt the difference now
26:43
is it is a different money money systems
26:45
commences since the 1930s a totally an
26:50
inflationary monetary system is Max and
26:52
I have taken over of the government’s
26:54
printing factory money money printing
26:56
press counterfeiting printing press
26:58
factories yeah down in Washington for
27:01
example I mean the oil of you probably
27:03
alive to the same Lee computers course
27:06
computers start over extremely expensive
27:08
and now very cheap they keep getting
27:10
almost it keep hearing getting cheaper
27:11
oil program for a while I getting cheap
27:14
on discovery numbering week calculators
27:17
which I remember I remember the first
27:19
the first time I saw a hand calculator
27:22
it wasn’t too long ago maybe 10 years
27:24
ago or something and I think was about
27:26
10 to 10 12 music alright it was on the
27:29
elevator he and one of my friends in the
27:30
ee department and he said look we have a
27:33
magic st. new product and all we have to
27:35
do is to punch these buttons and
27:36
multiplies in the life of Jesus fans
27:38
past they said yeah it’s only five
27:39
hundred dollars I got a discount so
27:43
these are the the capitalist system so
27:46
fantastic that right now we have a lot
27:48
better calculator for 18 bucks so this
27:51
is this is what happens when the economy
27:54
is given its head so to speak with very
27:55
little interference and you have a
27:58
fantastic increases production
28:00
productivity increase in quality and a
28:03
dropping huge drop in price same thing
28:05
happen with TV sets the first TV sets
28:09
around nineteen forty eight nineteen
28:10
fifty there were they were murky well
28:14
not only were they black and white go
28:15
and we can hardly see anything I mean
28:17
very murky images there’s no cable
28:19
either a bid and of course about 2,000
28:22
bucks every bites the whole neighborhood
28:23
sitting around gazing at the years old
28:25
you will flickering inventions all right
28:27
so now you have even with inflation even
28:30
the fact that dollar is worth one fifth
28:32
let’s say whatever it was nineteen forty
28:33
eight even so the prices are
28:36
fantastically smaller and much better
28:38
much higher quality and normal for me if
28:40
you have to take price per unit quality
28:42
he’ll use it and so you have a fantastic
28:45
going ninety percent robin prices
28:47
detective unit quality a real is this
28:49
council inflation it’s unbelievable so
28:53
this is what can
28:54
done and a free market system even with
28:58
as I say the government printing press
29:00
which turns on which makes prices in
29:02
general higher okay this is uh so
29:11
there’s some other words look like for
29:13
the supply changes you don’t have supply
29:15
increases you’ll have a slide Rob show
29:17
an increase in price and supply
29:20
increasing the other fallen price and
29:23
now one thing I’ve got to stress here
29:26
which I always every crack every micro
29:28
teach you’re always stressing this it
29:29
always makes the point and always always
29:31
says it’s still half a student at least
29:33
we get this rolling on a test and they
29:35
always right even though it seems to be
29:37
a simple point seems to be something
29:38
they shouldn’t very very difficult get
29:40
through the head of students namely a
29:42
difference between when you increase
29:44
supply for example you’re going down the
29:47
existing demand curve the man curve is
29:49
defined as a locus of response as the
29:53
price now the word given X the price of
29:55
so and so how much will be purchased
29:56
that’s the weatherman curve is so
29:58
therefore the one thing which can’t
30:00
change that a man curve is a change in
30:01
price the one ship thing which can’t
30:03
change it a man curve by definition
30:05
isn’t change in price if the man curve
30:07
is constructed the finance are
30:09
constructed as the sponsors the price so
30:14
if you have a increase in supply does
30:16
not increase the demand curve and
30:18
increases the quantity demanded going
30:20
down existing demand curve okay this is
30:24
the curve itself half a supply drops
30:28
going up the history in that occurred
30:30
you’re you’re you’re not the man curve
30:32
is a whole doesn’t shift you’re going up
30:35
you’re decreasing the corner of the
30:36
mannequins going up the same demand
30:37
curve we haven’t gotten the shifts in
30:38
the anchor of yeah that’s the next step
30:40
I just want to point out the change in
30:42
price will only go up or down existing
30:45
given the man curve by definition ok
30:50
that’s the changes applied the other
30:53
thing which can change is in a man curve
30:56
in other words the man Kirk and shipped
31:01
so why would the demand curve shift well
31:04
doesn’t shift or the responsible price
31:05
as I said one thing you can’t shift
31:08
responsive as I was the fine it can
31:13
shift because of inflation in other
31:14
words the people if the government
31:16
prints more money and gives it a length
31:17
spends at something so everybody gets
31:19
more money they’ll have more money to
31:21
pay enough by and everything it means a
31:23
man curve is a whole will shift every
31:25
demand curve will shift upward in other
31:27
words any given price they will
31:29
everybody will spend more money or find
31:32
more goods ready try to buy mortgage
31:34
every given price in other words the
31:36
main curve of the whole shifts upward
31:39
into the right so this is a an upward
31:44
shift that’s in other words everybody’s
31:45
willing to spend more for any given
31:48
prices everybody got normally I’d say
31:49
the government prints applies as much
31:50
money that’s gives with everybody my
31:52
favorite examples like all the angel
31:55
Gabriel model which is David Hume symbol
31:58
and while he didn’t call the engineering
31:59
model and but anyway sexually he said
32:02
what happens with an angel comes at
32:03
night and doubles everybody can supply
32:05
money it is my magic and they’ve gotten
32:08
everybody’s got twice as much money they
32:09
go in before they spend it everybody’s
32:11
now willing to spend a lot more and
32:13
everything so the demand curve shifts up
32:16
where n to the right of course prices
32:18
will then doubled while S on the end of
32:19
it but that was hume’s point but you
32:23
know again we don’t get into that part
32:25
of it here again a macro point but again
32:29
the question situation is that the man
32:32
covers a whole if everybody’s got more
32:33
money in their pockets the man curve
32:35
will go up the other half people have
32:37
less money in their pocket man curve
32:39
will shift downward in other words down
32:41
one for the left it will spend less
32:43
money in any given item like a decline
32:50
he’s going to be double Prime this will
32:54
also happen for example a people if
32:55
taxes go up if everybody gets the big
32:57
income tax increase just looking at the
33:00
taxpayers I’ll have less money in their
33:02
pocket that the man charged with all the
33:04
managers will shift it will down where
33:05
the left they won’t have a money to
33:06
spend very simple it’s a big tax cut man
33:10
curve will shift upward again we’re not
33:11
going to go too much into that the macro
33:13
point I’m going to point out that the
33:15
man curves part of the thing influence
33:17
the man curves or how much money people
33:18
have in their pockets
33:21
okay for individual goods and services
33:24
the man curve will shift on basis of
33:25
value scale changes so that these value
33:32
of scale change will upon a basis of
33:34
fashion preferences whatever for example
33:38
in the United States and last 40 years
33:39
has been a big shift of values a
33:42
preference by consumers and I’m a wine
33:44
front and wine and whiskey front the big
33:47
ship out of so-called heavy liquors okay
33:52
and into so-called light stuff either if
33:55
you want to lose weight or whatever it
33:57
is in other words there’s been a big
33:58
shift away from bourbon and scotch and
34:06
especially rye whiskeys a matter of fact
34:08
when I was growing up everybody freaking
34:10
blenders with you I’m with nobody breaks
34:11
blended whiskey anymore when did so
34:14
these things are going way down into the
34:15
man curves of shift of weight after
34:17
those the other hand vodka and gin of
34:19
going way up the the wine front has been
34:28
a big shift away from red wine and a big
34:31
shift in favor of white wine enormous so
34:35
you have a so-called yup page for
34:37
example or look none of the white wine
34:39
and quiche set so white man’s mappings
34:44
been a shift away from alcohol toward
34:45
white wine altogether huge increase in
34:47
one minute and 40 years but nobody drank
34:49
white ones this was all the fun things
34:50
unheard of so any rate these things
34:53
reflect this means of course the demand
34:56
curve front what you have is a means and
35:03
say bourbon banker for bourbon goes down
35:06
nine means people are now means that the
35:11
old prices will fall that the old prices
35:14
of there’s now a surplus I’m sold
35:19
surplus applied greater than the man if
35:22
I have to fool a meeting on the other
35:24
hand side with vodka a white wine as I
35:27
they increase in demand curve holdem
35:31
anchor shift upward and it means the old
35:34
price
35:35
is now a shortage so price will go up so
35:39
in other words the an increase in demand
35:43
curve for X and where’s the whole curve
35:45
shifts upward that’s what I’m in
35:47
Christmas and we when we just use the
35:48
phrase of the word increasing the man I
35:51
mean the entire demand curve it does not
35:52
mean this thing here in supply goes up
35:55
say and and you’re in your quantity
35:59
demanded increases if you just use the
36:01
phrase decreases a man at first of the
36:03
entire curve it means that any given
36:05
price people buy more of it than they
36:08
did before it’s what I made okay so
36:10
means the tire demand curve goes up here
36:13
to here and so they treat for the man
36:16
for x we yield an increase in price of X
36:20
on the other hand a drop of a man for X
36:23
safer Urban Neal and they treat a drop
36:27
on the price if people will not buy the
36:30
same amount but by less at any given
36:32
price will not bias that the old pipe up
36:34
i’m personally before the unsold surplus
36:38
the result of this the impact of these
36:41
demand changes or result in changes of
36:44
supply and now we now we get we get to
36:47
what shipment what causes people
36:48
producers from producing thing in the
36:50
first place so far we are talking about
36:52
supply being given 100 thousand loaves
36:54
or whatever that’s it now even going to
36:56
talk about what determines supply wire
36:58
produces hundred thousand begin with
36:59
what how do they determine how I should
37:01
produce the next step we’ll get to with
37:03
how these demand changes impact on that
37:06
okay let’s take a ten-minute break in
37:08
with Mac let’s turn like step namely why
37:12
decisions may to produce as much as
37:14
they’ve introduced why do they decide
37:16
whose 100,000 loads of Wonder Bread
37:17
about 50,000 i-205
37:30
okay let’s see what happens here quiet
37:33
please price quantity supply demand
37:40
let’s take a situation where the man
37:43
changes man increases for vodka or
37:45
whatever that might wine whatever
37:46
happens to be so the the permanent well
37:49
first of all business event half of the
37:51
size is this a glitch in the system or
37:53
as a permanent and that’s something has
37:56
to be done by insight into the again
37:58
twice the price goes up because of the
38:00
increase in demand new equilibrium price
38:03
is now higher and as we decide for
38:06
example of guys would reduce the guys
38:08
will look down into and the Cabbage
38:10
Patch dolls people who’ve been producing
38:12
doll ferg for 80 years right and nothing
38:15
much happening on where they oversaw the
38:16
Cabbage Patch doll it’s unbelievable you
38:19
commend this the math for it remember
38:22
one guy wait the great thing is one guy
38:23
from Pennsylvania actually flew to
38:25
London they get it get it there’s a big
38:27
shortage and the question is the Cabbage
38:32
Patch doll people out of the size of
38:34
following years this is this a temporary
38:35
thing a blinding blaze which will be
38:37
gone next year or not well it’s still
38:40
continuing at certain you know and fell
38:42
off a little bit so the hazardous is a
38:45
sort of a permanent thing okay with
38:46
white wine they trigger vodka yes it is
38:48
and so what then happens is if they
38:51
figure Willis’s this is gonna be a
38:53
permanent increase in the man tastes are
38:54
changing basic lace etc then they will
38:56
gear up and produce more vodka for the
38:58
future in other words they start
38:59
changing the situation getting white
39:02
grapes instead of red grapes for the
39:04
white wine and the year oven and how
39:06
long this takes depends on the
39:07
technologically and psychological
39:09
situation doesn’t how long it takes to
39:11
produce more vodka or more white wine or
39:14
more calculators or whatever so the
39:16
length of time depends on the and the
39:18
technology of the product at any rate
39:20
the means that over time because the
39:23
increase of price mean more profits it
39:25
means that there’s a greater price for
39:28
product being sold them before they gear
39:32
up they produce more of its over the
39:33
years supply curve will then shift in
39:36
other words the next year’s supply lon
39:39
will be higher because the right
39:41
shipping the right separate cetera you
39:43
wind up let’s say after about few years
39:45
with a permanently new supply curve
39:48
which is now which reflect increased
39:51
demand for vodka in other words so this
39:54
means you have a time time situation a
39:57
time period situation where we’re at the
40:03
a year one let’s say the price goes up
40:06
the first thing that happens the man
40:07
curve for X goes up it decreases the
40:09
price a a year later the supply goes up
40:14
a little bit of response to that and so
40:15
you have the price going down a little
40:17
bit increase the supply of X a drop of
40:19
the price and so forth and so on till
40:22
you get Taylor here where the price is
40:23
down somewhere in between the initial
40:25
initial one here up there and so as the
40:29
supply goes up the price that then for
40:31
overtime so what you have is a series of
40:35
vertical increases the supply only like
40:37
that but finally you get a new final
40:40
equilibrium point mode where this is a
40:42
long run equilibrium point takes four
40:43
years of fighting with depending on how
40:45
long it takes the gear up for all this
40:47
so what you have is you line up
40:49
eventually with a permanent increase in
40:51
supply I’m reflecting this permanent
40:53
increasing demand for sa white wine or
40:55
vodka the other hand let’s take the
40:59
falling demand bourbon let’s say they
41:06
come in bourbon it was a fool in the
41:09
math of bourbon man cure for bourbon and
41:14
so they have a d prime the new curve
41:18
goes like that first you have a big drop
41:21
as the the surplus the previous price is
41:26
now unsold surplus you wind up with a
41:31
lower price and equal to know the new
41:33
equilibrium price is much lower then if
41:35
the if the winemakers the whiskey makers
41:37
believe this is going to be permanent
41:39
this reflects a permanent change you
41:40
drop it in there for red wine or bourbon
41:42
then over the years old supply less of
41:44
it they’ll shift away from red wine into
41:46
white wine which of course is what
41:48
exactly what they’ve done much less red
41:50
wine being produced a lanista be my
41:52
more white wine doesn’t mean all red
41:53
wine disappear there’s always a margin
41:55
question of a marginal changes less
41:59
bourbon more vodka and so what you have
42:02
is a lower supply each year and as a
42:04
supply drops you have a price goes up
42:09
again if you wind up somewhere in the
42:11
middle and so you have then over time a
42:14
response to the lower demand for red
42:17
wine you have a much lower supply of a
42:20
lower price and a lower supply all those
42:22
of the white one you wind up then the
42:24
permanently lower supply as a
42:26
responsibility to the lower demand all
42:29
right overtime production of an
42:34
interpreter produce something they’re
42:35
doing an anticipation of selling it to
42:37
the consumer anticipated demand if the
42:39
man rises and these very vain and they
42:41
realize they expect it and they will
42:43
produce more to meet that demand so the
42:46
man for they realize and expected me to
42:48
produce lectures and response to that I
42:50
mean over time the consumers assigned
42:52
how much will be purchased how much
42:54
weeks produced of everything I think
42:56
they like a product and they go for it
42:58
in a big way calculators computers or
42:59
whatever a lot more be produces huge
43:01
shift of resources land labor and
43:03
capital into this new industry from the
43:07
other hand they don’t like a product
43:09
they go away from it resources will flow
43:11
out of the industry out of the red wine
43:12
into white wine out of bourbon into
43:14
vodka and whatever of course you have
43:18
for example calculate before the
43:20
calculator I know if any of you’ve seen
43:22
this this is the technological museum
43:24
somewhere when I was going to college
43:25
hey II statistics they have a school I
43:29
think multiplying machines running for
43:32
it I believe and they were big bruisers
43:35
huge very heavy and you punch to have a
43:38
whole bunch key boy keep punching it
43:40
again to multiply something divided and
43:42
it took a long time he almost was only
43:45
slightly left i’m doing my pencil and
43:48
that had a statistical labs which should
43:51
take you our if you these losers and
43:53
they force it analysis they’re obsolete
43:54
they were totally up Celeste Vatican I
43:57
calculators in computers and and then so
43:59
they should have some of these companies
44:01
that they are no longer here they are
44:03
you know more producing us that stuff
44:05
Varro’s freedom those are the big names
44:09
and meet wish calculating machines I
44:13
guess they were cool and so less of them
44:16
is produced of any right now I guess
44:17
zero is produced oh that’s toughens and
44:21
they shift other better products with
44:23
your demanded by consumer and some k
44:25
like the horse and buggy and used to be
44:26
millions of carriages being produced
44:28
every year there ain’t no carriage is
44:29
except for the hansom cabs and supper
44:31
park are still a few it’s obviously some
44:33
little hansom cab plant somewhere if it
44:36
is going to be one a year something like
44:38
that but the hansom cab industry is
44:40
fallen by the wayside and so they should
44:43
have the aura Beals come in to replace
44:45
it so so over the long run and the long
44:50
run is that long consumers the side by
44:53
that demand curve by the value scales an
44:55
anchor how much should be aware
44:57
resources should go into where a land
44:59
labor capital science whatever engineers
45:02
where they should focus their attention
45:04
on and it’s decided by the price system
45:07
through the prices and the through the
45:08
main curves and profit and loss system
45:10
who’s going to make profits where and
45:12
when this reflects the intensity of the
45:14
man by consumers that’s how the system
45:16
works that’s how resources get funnel
45:19
into out of bourbon and it’s as vodka
45:22
out of red wine and a white wine and so
45:24
far out of calculating machines into
45:26
calculators and separate sucker a
45:27
separate okay so this is the so that the
45:35
man curves prices can change either by
45:38
an increased either by changes supply or
45:39
changing the manned the supply
45:42
increasing prices full price will fall
45:44
45 decrease in the price rises if the
45:48
demand curve increases price rises and
45:50
well if considered permanent in lift or
45:53
induce a greater in Tikrit a long-run
45:56
increase in supply and for the man curve
45:58
falls so consider permanent will induce
46:00
along and we’ll run Robert supply now if
46:04
you take this any given product and take
46:12
this vertical curve and if you look at
46:18
I think if the man curve increases and
46:21
how much will bubble having a supply
46:22
as a result and you wind up let’s say
46:25
here and to make her fools what happens
46:30
to supply as a result will keep dropping
46:32
until here and if you connect these if
46:35
you connect these dots you get what the
46:39
textbook has with a forward sloping
46:40
supply curve that’s where that comes
46:43
from but this is a long run supply curve
46:46
it reflects what happens if the price
46:50
settled at any given point for a long
46:52
period this is how much will be produced
46:55
if the price settles that a buck 50 or
46:59
low for the one or better produce more
47:00
of it if I settle for 75 as well that
47:02
leaves less of it over the long run a
47:05
long run supply curve then if not the
47:08
same thing as a manner it doesn’t belong
47:10
on the same graph one of the basic
47:12
problems with the man curve is
47:14
instantaneous it’s a freeze-frame
47:15
situation any given day this is rather
47:18
than a curve is how much will be
47:19
purchased at any given price the
47:22
vertical supply line is the equivalent
47:25
belongs on the same graphic up the
47:26
freeze-frame if it’s actually today’s
47:28
supply how much is available at the
47:30
store to be sold today the long run
47:32
supply for the long run upward sloping
47:34
supply curve is a third dimension thing
47:37
it incorporates time in it it’s a long
47:40
run situation tells you how much will be
47:43
produced in other words if over time a
47:45
lot more be produced with this higher
47:48
price of these like that if you only be
47:50
a small increase in production a higher
47:51
price would be something like that
47:53
doesn’t belong in the same graph the
47:55
dress thing but not really that doesn’t
47:58
it’s not relevant the immediate price
47:59
determination that’s the problem with it
48:03
also the elasticity of supply doesn’t
48:06
make that much difference but there’s
48:07
some interest most supplies elastic can
48:11
mean if you if you offer a higher price
48:13
you’ll get more lets it was uranium but
48:15
it hasn’t had the same it hasn’t got the
48:17
same importance of the LS the city of a
48:18
man but if total revenue is impending on
48:20
it if of course if you sell more you
48:25
hire a higher price you get a higher
48:27
total revenue you never have a lower
48:28
total revenue at a higher price for the
48:30
supply curve so
48:32
not really it doesn’t really have the
48:33
same importance so that’s why I’m
48:35
dealing with day-to-day demand for
48:37
immediate real demand curves that supply
48:39
curves I deal with a vertical or so
48:42
forward stopping one of the long run
48:43
looking over at time for different
48:45
products one thing is what you can deal
48:49
with right now is there right now such
48:51
almost no such thing in the vertical
48:53
supply curve of course it’s true with
48:55
took longer in the long run Rembrandt’s
49:00
are not gonna be any more Rembrandt
49:01
being produced with Rembrandt’s dead
49:03
very simple law so the supply of
49:05
Rembrandt and it’s not only vertical
49:07
right now it’s fixed forever except the
49:09
mic they might lose a run brownie of the
49:11
bow down no way which is why memorize
49:14
can increase set of some of these forges
49:16
a perfect forgery it’s very difficult
49:19
because the technology of detecting
49:20
forgery for art of the norm of T hundra
49:22
x-ray equipment with other too stuffy
49:24
pigments into the whole the whole oh
49:26
this is the whole science of
49:28
architecture and there are very good
49:32
forgers in the sense they paint as well
49:33
as a Rembrandt does they can they can
49:35
forge it but they can’t really do it get
49:36
away with it technologically so on other
49:40
things the other hand are you know
49:41
they’re usually much more you can
49:44
increase the supply if you get if you
49:45
want to do it and it’s plenty of stuff
49:49
and we’ll get through this later on when
49:51
we get energy for since 1890 they’ve
49:54
been so cool experts in the field of oil
49:56
claiming the 10 years oil will run out
49:58
make it mean more no more oil left and
50:01
it’s saying this is eighteen ninety know
50:02
what the experts 1990s said by 1900
50:05
there’s not gonna be no more oil hmm why
50:08
do they why do they say that because
50:10
they take it’s very simple i means like
50:13
you use mathematical models but
50:15
basically it’s very simple they do is
50:17
this they take proven reserves
50:19
underground okay so proven reserves I
50:23
don’t know I having up the figure let’s
50:26
say it’s proven reserves or billion
50:27
barrels alright and and then they say
50:32
well look at the annual use of oil
50:34
annual consumption of oil i said 100
50:35
million barrels a year annual
50:38
consumption so they can clue the a is
50:43
very simple including 10 years or was
50:45
running out
50:46
agree 3 simple extrapolation the problem
50:50
with it and the saying the same people
50:51
more the saying thats as i say is 80 90
50:53
the problem is the proven reserves don’t
50:55
mean a damn thing coolin reserves are
50:57
only what they’ve already am mapped they
50:59
know exactly where the stuff is plenty
51:01
of stuff down there which you have a map
51:02
yet and so when the price goes up most
51:05
let’s say for example let’s say here’s
51:10
well they say we get the energy and
51:11
detail later on but the let’s say that
51:16
the supply starts going down for a while
51:18
as the supply goes then you know now
51:21
what happens price goes up as the price
51:24
goes up you have two effects now the
51:26
incentive effect on the rationing affect
51:27
the rationing effect means that people
51:29
will buy less oiler the marginal oil
51:31
buyers are going to disappear it’s a
51:33
person or exactly what happened late 70s
51:35
the price goes up they start conserving
51:38
put on clothes they just buy a less of
51:40
it they find ways to do it usually a
51:44
human lover if we can’t buy less oil
51:45
essential and modern economy all that
51:47
stuff this is nothing that says nothing
51:49
more generally known as you always buy
51:50
less of something just like with the
51:52
subways you always have one less subway
51:54
ride a week and on this adds up if
51:56
you’re million people do it so the price
51:59
goes up you’re going down you’re going
52:02
down the same demand go up to the man
52:03
Carter was a lower quantity demanded and
52:06
with a price going up is more incentive
52:08
ago out there and look for oil ah types
52:10
of world of higher I mean the ghosts are
52:11
looking for they go looking for it by
52:13
God they find there’s lots of oil down
52:14
edge of the question of price it costs
52:16
money to go and explore it or for it
52:18
drill it and what sort of stuff and if
52:20
the price goes up as more of an
52:21
incentive that vote for my god they find
52:23
it and so if it happening since 1890s
52:25
proven reserves keep growing up even
52:27
with the annual consumption or even when
52:29
the annual consumption is enough food
52:32
reserves magically keep increasing and
52:34
the reason why technologists tend to
52:36
overlook this and they did that the
52:38
famous flopper rule on this was the
52:40
famous of the global 2000 report I think
52:43
we’ve submitted the president quarter in
52:46
the mid-70s who claimed the mighty 1980
52:49
1985 oil we did will disappear plus
52:52
everything else they use computer models
52:55
and Big Shot technology the problem was
52:57
it wasn’t money konnen us and a lot
52:59
and they forgot about Prai the price
53:02
system but but but marks everybody is
53:04
not an economist they forget about the
53:06
prices and they assume the prices are
53:08
not important and so that if you assume
53:12
that the man has nothing to do with
53:13
prices and supply of nothing do with
53:14
prices nobody see what everything is
53:15
vertical tonight and so what happens in
53:19
real life as I say when the price of oil
53:21
goes up they start people start to spent
53:23
buying less of it and also they start
53:25
looking for more of it and so the supply
53:28
keeps increasing and this is exactly
53:31
what happened and refutes all these all
53:35
these gloom doom gloom and doom
53:37
forecasters costly being refuted without
53:39
raising p we’ll see you later honest is
53:43
nothing i have an OPEC hope I finally
53:44
cut it slow it took some years to do it
53:46
they finally got took up to the point
53:48
where non-opec countries were financed
53:50
on producing more oil like Britain
53:52
supports go on any rate there’s a so
53:58
this is uh this is not your arm you see
54:00
you’re a technologist so we’re now
54:01
normally comic knowledge which most
54:02
technologies don’t have I’ll give you
54:05
already a leg up and next guy says oils
54:07
gonna disappear in 10 years remember
54:09
that you’ve heard different you’ve heard
54:10
that they’ve been saying this for 100
54:12
years now there’s also by the way I’m
54:24
not going to say I’m not taking a
54:25
position on this because I don’t not my
54:27
area I just want to point out to you
54:28
that there’s there’s apparently a
54:30
maverick bigshot astrophysicist is also
54:33
a big in geology everything else at
54:34
Cornell who claims the oil is not
54:36
produced from from fossil fuels does not
54:41
come from the vegetable animal–
54:42
sediments but the hydrocarbons really
54:45
come from from other stuff non organic
54:47
matter so if he’s proven right this
54:51
means a lot of oil and particularly
54:52
natural gas way down deep and so long
54:55
probes will find a lot of stuff down
54:56
there if they do and everything all that
54:58
stuff gets shot the hell princes then
54:59
there’s almost no shortage ever
55:02
especially natural gas anyway well the
55:06
sweeteners now sweeten is now having a
55:08
deep probe which will parently test this
55:11
theory so it should come
55:13
the yard to find out whether or not
55:23
apparently meteor and but his face is a
55:25
thing and one of the things and so the
55:27
meteor lights have a lot of hydrocarbons
55:29
which are not obviously does not come
55:30
from for animal or vegetable settlement
55:34
so and rapes I’m gonna get involved in
55:38
the bait on that happen just I’m just
55:39
pointing that out okay so we now see
55:45
that how prices are determined by supply
55:48
and demand and how long run that
55:51
determined by supplying the man how many
55:53
creases in the man we’ll both pull
55:55
resources into areas decreasing the man
55:59
will take resources away from those
56:01
areas and so that consumer demand is
56:04
sort of a king and queen of the elec
56:06
anomic system the tumors determine what
56:08
will be profitable therefore what will
56:10
be produced and what will make it on the
56:12
market won’t won’t the famous example
56:17
some some some some not so much he come
56:19
as some writers claim that intellectuals
56:24
claim that the man is determined by
56:26
avocados advertise something people will
56:28
buy it well I advertiser’s wish that
56:30
were true make that life a lot easier
56:32
doesn’t doesn’t not only doesn’t always
56:34
work you need advertising order to sell
56:37
film especially a new product but
56:38
advertisers know it was no panacea it
56:40
was of course the famous example of the
56:42
EPS whole plot to rule the EPS old car
56:44
which had lots of advertising lots of
56:46
cloud behind the total flaw Peru and
56:50
that’s is right now the episode with
56:51
fairly apparently how heavily in the man
56:53
is a collector’s item another Wesley and
56:56
you get to the point where collector’s
56:57
item another famous flop a rule is they
57:00
originally when and shoes were there’s a
57:02
big thing with shoes with a nigga made
57:04
it made out of core fan of set of
57:05
leather I think core has come a to come
57:08
back and I saw this mix system but
57:10
anyway the idea was for fans shoes was
57:13
so long vases the shoe never wears out
57:15
he’s undoubtedly true except the problem
57:17
of the feet wore out so nobody wanted to
57:21
wear this damn things and again a total
57:23
flop arou something
57:27
slightly forgotten by the technologists
57:29
who were crazy about core fan any right
57:33
so these things and by the way one of
57:35
the examples of how the mountain the man
57:38
is not determined by advertising is that
57:39
exists is a fantastic huge market
57:42
research subculture United States a
57:44
whole bunch of market researchers it’s
57:46
also good part time occupation by the
57:48
way that people who want to spend a few
57:49
hours a week at this thing and they
57:52
where they do is the business now that’s
57:54
really trying to find out will consumers
57:55
buy this product will they buy this ad
57:57
will they go for it this is obviously an
58:00
indication they can’t determine anything
58:01
just trying to find out my god what
58:03
should we which should literally like
58:05
better which will lose this like more
58:06
they’re constantly trying to find out
58:08
desperately courting the consumer kind
58:11
of figure out its you more like your
58:12
won’t life it’s hardly a determined
58:15
process and one thing about and
58:19
sometimes of course intellectuals gripe
58:22
about the stridency of advertising
58:23
Robert the hyphen but yet realize is a
58:25
great it’s a great world great system
58:27
where for consumers are courted even
58:30
stridently for best reply my product he
58:32
had to get the consumers attention first
58:34
is he murs bombarded by all sorts of
58:35
stuff there’s people are busy they’ve
58:37
got lots of things to think about or
58:38
whatever and so why should I worry about
58:41
some probably have to sort of catch the
58:42
attention of a person hey here’s my
58:44
product fantastic and socialist
58:47
countries they don’t worry about
58:48
consumers consumers are pain in the neck
58:49
it’s not much advertising result is no
58:52
courting the consumer consumers are as I
58:54
say our burden much the much worse
58:57
system that they have to be a burden
58:58
that you would be burn them to be
59:00
courted are paying that and socialist
59:03
countries and companies or government is
59:05
in the saddle instead of consumers then
59:07
it’s it’s considered anytime anytime
59:10
anybody uses something or consume
59:12
something if it’s you’re wasting the
59:14
social product quote-unquote whether you
59:16
your consumer you’re wasting unless
59:17
you’re a government of bureaucrats only
59:19
thing and then we’re looking to have
59:21
anybody use it summer to making it
59:22
making it shorter that’s the best
59:24
thinking there goes behind it you can
59:27
see here will get the water shortage
59:29
they allege water shortage later on we
59:30
can see you when the water shortage hit
59:32
the whole attitude on the part of the
59:34
here’s the government which essentially
59:36
mita supplies the water in the stream
59:37
order entry used to be private way back
59:39
now you
59:40
all government water companies water
59:43
services the whole attitude of the
59:45
party’s guys is the consumers are a pain
59:47
in the neck they using water stop using
59:49
it but their attitude great attitude
59:53
stop using everything no you’ll never
59:54
have any shortage nobody eats drinks it
59:58
does anything else so so these days they
60:02
immediately start blaming the consumer
60:04
the water shortage because consumers are
60:05
drinking too much they’re showering too
60:07
much whatever watching that cars and a
60:09
private enterprise and a private firm
60:11
they don’t blame consumers are trying to
60:13
get their custom they trying to get
60:15
people to use the product they don’t
60:16
consider it a pain in the neck I
60:17
consider a great they’re trying to find
60:19
ways against I could get people increase
60:21
the consumption of a product they don’t
60:23
blame them if they matter of fact of
60:24
does not if you have a private water
60:26
company tried desperately to get more
60:27
water they’re trying to get they try to
60:29
get the water enough water try to get
60:31
the reservoirs and pipes and pipelines
60:33
outsourced off in such a way people have
60:35
plenty of water to use it’s only when
60:38
government supplies it but the whole
60:40
thing is a pain in the neck because
60:41
government doesn’t live by proper they
60:42
don’t care of our profits you don’t go
60:44
bankrupt if they lose them a pair of
60:46
deficits they just tax the people
60:48
mortars I get to make up the money uncle
60:51
SAP done was a taxpayer pays the
60:53
difference so that’s the totally
60:55
different attitude cus the different
60:57
economics totally different active of a
60:59
government officials there’s not one of
61:02
them to supply water a lot of better
61:04
efficiently anything else is the whole
61:05
thing becomes something to have a get on
61:08
the payroll get your guys your
61:10
organization people on the payroll and
61:11
also get the taxpayers to keep funneling
61:14
only money into it so you never have a
61:19
private firm saying we’ll stop using
61:21
your at your fault you’re looking too
61:22
much water you showering too much that’s
61:24
not the attitude now this is the
61:25
attitude of course on the same with
61:26
government will get to when we get to
61:28
water shortage later on we’ll see how
61:29
the pricing system big effect on that
61:32
but this is a general attitude you’d see
61:34
right away the difference between
61:35
courting the consumer trying to get
61:37
people to buy more of your stuff gets
61:39
there in consumption or use just sort of
61:41
painter than that kind of necessary evil
61:43
or at best ok and we now have
61:55
each we now have each individual price
61:58
of each individual good how each
62:00
individual price is determined by the
62:02
intersection of falling demand curve and
62:05
vertical supply line for the runny given
62:07
time period and how it changes over time
62:10
either by changing supply curve or
62:12
changing the man curve which then
62:14
becomes a resource pulling affect other
62:17
words there’s n increases or decreases
62:18
resources going into the particular
62:20
product what we now have to look at is
62:24
relationship between different goods in
62:31
other words what we’ve been doing so far
62:32
talking about each good at a time and
62:34
now if we tend to start talking about
62:36
what the relationships are between
62:37
different products okay some goods are
62:43
close substitutes are every good as a
62:46
sense of the substance of consumer
62:47
dollar always be some left more you
62:50
spend more of something get your money
62:51
you have it fixed you spend more on good
62:54
actuals have you buy necessarily be
62:55
spending less on good wild that’s a
62:58
general situation but more than that yes
63:00
some goods which are close substitutes
63:01
or substitutes and some goods which are
63:13
not accept this have a definite
63:16
relationship between there and demand
63:17
and supply curves for example let’s get
63:20
to the coffee case coffee and coffee
63:35
supplies for because of a big cross and
63:40
place goes up the substance there are
63:48
substitutes for coffee which are then
63:49
become intimately right of this thing in
63:51
other words when people started buying
63:52
less coffee because of the increased
63:54
price they shifted to other things like
63:56
cocoa and tea the hand other words this
64:00
is T which is a close-up view of coffee
64:07
the man curve for t went up in response
64:12
in other words people will abide p
64:13
increase purchase at any given price
64:16
because their man curve went up and
64:17
respond to the higher price for coffee
64:20
in other words the chain of cause and
64:25
effect works like this and increase it a
64:31
form of supply of X in the word coffee
64:36
raises the price of X this X and Y are
64:40
close substitutes an increase in the
64:44
price of X brings about an increase of
64:47
the man for why because X is much more
64:51
expensive coffees more expensive you a
64:53
lot of people throw a lot of heck would
64:54
call family i’m shifting the tea you’re
64:56
only a marginal coffee drinker are you
64:58
going to shift the tea as it shifted t
65:01
like that this place is peeping it to go
65:05
up how much it goes up we don’t know
65:07
there’s all kinds of teamwork of the
65:09
coffee market or whatever when the point
65:11
is is now increasing the man curve for t
65:14
which leads the price of tea to go up
65:16
also eventually some extent so we now
65:20
have demands for why increasing the
65:28
price of why in other words in response
65:32
to the more expensive coffee the man
65:34
forty goes up and the price of T becomes
65:36
also more expensive well how much it
65:37
does we don’t know it’s not a
65:38
quantitative loss of qualitative law so
65:42
we have a situation where two things are
65:44
competitive the drive here toward when
65:47
the supply changes or the drive toward
65:49
making the price of the other one also
65:51
competitive I’m this kind of process
65:54
sounds more expensive people then return
65:57
to tegan is cheaper relatively cheaper
65:59
than talking at and t becomes more
66:01
expensive eventually too so competition
66:06
then cuts not only within each each
66:08
product also between close substitutes
66:10
and the same way for Coco same process
66:14
occurred for Coco we have this cocoa
66:24
we have the man for Coco going up messes
66:27
man certain Z increases three spices
66:31
disease okay you look look at the other
66:42
way around now increase the pliant kulfi
66:53
coffees now crosses over price goes down
67:01
and so thanks to the coffee is now
67:13
cheaper the manicure 40 drops so the
67:15
dope man tortilla fold because because
67:18
coffee is cheaper people willing to buy
67:21
less tea at any given price and so the
67:23
price of tea then drops a response to
67:25
that in other words you just reverse the
67:28
signs here an increase in supply of X
67:30
will lead to a fall on the price of X
67:34
and which would term illegal rather the
67:37
man for why the substitute and this will
67:40
lead who are dropping the price of Y
67:42
similarly for Z we have raviga may incur
67:46
for cocoa for the price of togo phone
67:48
with it that’s the coast substance that
67:53
is happening all throughout the market
67:54
of court not just a coping field for
67:55
everything substitutes for raw material
67:59
substance and machinery metals all sorts
68:01
of things iron aluminum whatever
68:04
aluminum and magnesium only things that
68:05
substitutes in some way one way or the
68:07
other not perfect substitutes but
68:09
they’re closed subsystems and they can
68:11
they inspect each other’s they affect
68:13
each other’s market impact on each
68:14
other’s markets let’s see what happens
68:22
when their exact
68:26
that’s what happens when of the change
68:28
in supply changes supply well cause a
68:32
change a change of the price and the
68:35
similar change in prices for the other
68:36
substitutes well there I don’t have
68:39
something different different happens
68:40
whether the changing the man is a change
68:43
of the man is really usually reflects
68:45
changing the value scale between said
68:47
coffee and tea anyone in other words as
68:49
you say this is the coffee market this
68:54
is a team market and let’s say people
69:01
begin the shift from Peter coffee as a
69:03
matter of fact original United States we
69:06
drank mostly tea coffee with strips on
69:07
the late edition and so the big shift
69:11
from Causton from t2 coffee that means
69:14
that the man curve for coffee goes up
69:16
and eventually force applied apply
69:20
increasing response to it mankhurd for
69:23
coffee get 40 yo down and price falls
69:25
and eventually it’s the plywood for
69:28
response but when you have a this kind
69:31
of a ship in other words we have a shift
69:32
reflecting changes in the value scales
69:34
of those consumer then there’s an
69:37
opposite change in price those words the
69:39
coffee price goes up least in the short
69:41
run to reflect the increase the man for
69:43
coffee and the price of tea goes down
69:46
reflected for the man 40 so in this case
69:49
the case with a value scale shift the
69:52
prices don’t move in opposite directions
69:54
that are the same direction is now
69:55
you’re having a difference and values
69:57
Impala consumer they don’t want anymore
69:58
they shift away from the price of tree
70:00
he drops response to that they want more
70:04
coffee and fights of Kofi goes up a
70:05
response to that moving in the opposite
70:07
direction is going to sponsor other the
70:09
changes and values well there was a
70:12
supply change then it was the same
70:13
change in the same direction because the
70:15
values remain the same p value still
70:17
remain the same just a different supply
70:19
conditions now you have a change in
70:21
value of shifts and value scale the vase
70:22
guys are all relative to each other one
70:25
thing goes up the other hand feel
70:25
downright because all ranking remember
70:30
so in white wine red wine is gonna
70:33
increase in the expensive might like a
70:35
pair to red wine a percent of the
70:37
shifting supply and the
70:39
I swaps such a response of that so the
70:43
then the changes of price are opposite
70:45
to each other so that’s where close
70:50
that’s where having to close substitutes
70:52
okay you’ve got a big dose here tonight
70:55
said i am sol think i’ll leave at this
70:56
point

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