Imagine the scenario: you arrive at the grocery store to buy a bag rice, but its been a bad year for rice, and supplies are low so the price has gone up. You love to eat rice, so you accept the price increase and buy it. You also want to buy a jar of palm oil, and find that its price has decreased because more countries are producing it. You don't cook with palm oil often, so you only buy one jar. These basic laws of supply and demand should be familiar to you: plentiful items are cheap, and scarce cost more. In economics, these concepts are used in a more nuanced way. Whereas the previous lecture discussed the pricing of final goods, in this video Dr. Saifedean explains the pricing of factors of production using simple graphs and examples from Rothbard's textbook. As you watch the lecture, be aware of the limitations of the mathematical illustration of equilibrium. For instance, they are influenced and shaped by the preferences and ideas individuals have.The lecture concludes with Mises' discussion of the market system's treatment of inequality, and how the market system is the method for cooperation between individuals. Take note of how Mises thinks the market provides an adequate solution to concerns of inequality, and how it channels human competition productively to the benefit of all. After you watch the video lecture in its entirety, brainstorm a business plan that involves several inputs into a production process, where each good has to be expressed in terms of the ones for which it is exchanged.
- By serving as a common medium of exchange, money allows for all prices to be expressed in its terms, making economic decisions far easier.
- Prices are merely a reflection of the actions of individuals.