WEBVTT

NOTE Supply and Demand

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Okay, proceeding on with supply and demand, we have our falling demand curve, and the vertical supply line, like so, and intersecting at the market equilibrium price,

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price on the y-axis, quantity on the x-axis

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and now we come to second figure two

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where we now see what happens when

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how we get to the famous forward-stopping supply curve

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all of you are probably familiar with

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the forward-stopping supply curve on the textbook

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is really strictly mathematically incorrect

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Well, what it really does is present you a long-run locus of what's going to happen after adjustments can be made, in other words, after months and years of adjustments in the production system.

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For example, supposing we have widgets. Widgets are a great hypothetical product that for some reason only economists like to talk about.

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Non-existent hypothetical, therefore has no properties.

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All right, and this is the man curve for widgets and the supply line for widgets,

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the two million widgets being produced every year, and this is the equilibrium price.

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And then something happens, all of a sudden there's a big increase, let's say, in the demand for widgets.

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It could be because the leaders, the social leaders of the country, of the world,

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and then all of a sudden take the widgets in a big way and Willie Stargell says I smoke widgets or I wear widgets whoever it is and the Queen of England likes it and so forth and so on.

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It's a big increase in the math of widgets.

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So what you have then is an increase in the man curve upward.

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Demand curve shifts to the dotted line here, B prime, which means at any given price, more of the widgets will be purchased than before,

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but everybody wants more widgets now, the value scales have a higher, most people, all people have a higher ranking for widgets than they have before.

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So this means that initially, in other words, when the big initial push comes for widget demand,

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There's only this million widgets around, or million cases, or whatever they're sold in.

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And the price suddenly goes up.

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Because of the old price, as you remember from the market quote, mechanism unquote,

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which the old price cleared the market before, now we suddenly find a situation where at the old price,

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the demand is much greater than supply, but now the demand curve has shifted upward and to the right.

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So all of a sudden a shortage of widgets develops at the old price,

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The widgets leave the shelves very quickly, and the sellers and businessmen raise the price,

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and as the price of widgets goes up, the shortage is eliminated,

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and finally we get the new equilibrium price, say E2.

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Okay, that's what we mentioned last week, where the increase in demand will give us initial push,

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and people will evaluate the widgets more highly, and therefore the price will go up.

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The next step, so that's phase one, so to speak, and the widget twice question.

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The next step is what happens now?

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Well, in some things, of course, nothing happens now.

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I think in products where you can't have any increase in supply

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because all of the possible supply was reduced a hundred years ago or so.

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For example, Rembrandt's.

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It's impossible to increase the supply of Rembrandt

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once you have a very, very good forger and the forger remains undetected forever.

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Barring that, supply of Rembrandts will remain forever the same. In other words, the supply curve will be fixed.

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And the only possible way that goes is to go downward, if some Rembrandt gets lost or something like that.

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So in the case of Rembrandts, there'll be an increase in demand for Rembrandts, an increase in the price of Rembrandts, and that'll be it.

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And the Rembrandts will then be allocated again to their most value holders, so to speak. Those will be willing to pay more for them.

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So in the case of Rembrandt, there's not much more you can do.

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And you just say that this is the supply line for Rembrandt, and that's the end of it.

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But in the case of any product which can be increased in production, such as widgets,

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then the widget manufacturers start getting very busy.

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And all of a sudden you see an increasing amount of widgets that say, oh boy, yippee.

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Well, widgets are here again, and so forth, and they start increasing.

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They start tooling up and increasing the supply of widgets.

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Now, how long this will take depends on the data of the individual product.

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For example, in the late, unlimited meat shortage this spring, one of the problems there was it takes a couple of years to increase the supply of beef,

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because cows, the production process for cows takes a couple of years, whereas for chickens it only takes a few months.

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This is a technological production process.

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So, in the case of widgets, whether it's a couple of months or a couple of years, depending on the situation, new manufacturers enter the widget field, old manufacturers expand their production, repair their rusty locks and go into business and so forth.

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And over the years then, or over the months, we begin to have a shift in the supply lines, the vertical supply line of widgets, rightward.

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So after a few months, we may have this much, after some more months, that much, and so forth.

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So, let us say that after a couple of years, we now have this, let's say, SF, final supply, or as I'm sure you'll say, final supply line.

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We now have the current situation, the phase, after phase two, in other words, after the supply has increased, and in response to the great increase in widget demand,

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And we now have a new equilibrium point, E3, which is the intersection of the new demand curve, B-prime, with the final vertical supply line.

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In other words, after a few years, after widget prices, after widget manufacturers retool, enter the widget business once more, we have an increase in the supply of widgets and a response to the increase in demand.

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In this way, demand is able to call forth its own supply, so to speak, in response to the incentives due to the higher prices.

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Businessmen expand their production of this particular product, and the price then falls back from E2 and onto some intermediate point, E3.

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The forward-sloping supply curve, of which most of us are familiar, takes the locus of all these changes, all these responses of supply,

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and connects them all together in the same way as our planar supply curve, SL, I think, in the long run.

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In other words, what we're dealing here with, the forward supply curve is a long run supply curve,

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which answers a very different question than the man curve.

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The man curve says how much of any particular product will consumers buy at any given time.

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The man curve freezes the market at any, like a free shot in the movies, at any given moment, and at that moment, how much will be bought at given hypothetical prices.

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So the man curve is instantaneous, the snapshot kind of figure.

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Whereas the supply curve, the forward-loading supply curve, is really a long-run curve incorporating time within it,

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which says how many widgets will be produced, will be called forth on the market given this particular price.

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In other words, given a very low price, we only have a few widgets being produced.

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Given a higher price, more widgets will be produced, giving a very high price, enormous amount of widgets will be produced, and so forth.

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So what we have with the supply curve is something which really technically should not be on the same graph as the demand curve

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curve, because what it tells us is it incorporates time within it, and it says given time for

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adjustment, given time for response, given time for the widget manufacturers to either

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get out of the industry if prices are too low or get in if prices are high, listen,

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we have much production would be called forth.

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But it's still very, even though it's technically incorrect, it's still interesting to contemplate

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it because it's a valid way of looking at the situation because it shows how supply

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and require a response to the changes in demand.

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And similarly, of course, as demand falls, people get sick of widgets.

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Queen Elizabeth or Willie Stargell said, you know, announced the fact that they hate widgets now.

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And the demand curve of widgets drops into the exact opposite situation.

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We have a sudden drop in prices, followed by people getting out of the widget industry

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and winding up with prices going back to some extent and winding up with just a few widget manufacturers.

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It's like the horse and buggy manufacturer. There's still a few horse and buggy manufacturers left.

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Obviously, it's way, way less than the heyday of the old, you know, the pre-automobile heyday of the buggy industry.

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So, in this way, consumers, by their changes in demand, are able to redirect and redirect factors of production.

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Land, labor, capital, investments, energy, and so forth, direct and redirect them into those areas

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where consumers would like, want products, where the demand is the most urgent or highest, such as say, widgets, and out of those areas where the consumers no longer wish to buy stuff, such as whatever, hula hoops, and so in this way, consumers are able to direct production out of those areas which they are not particularly interested in, into those areas where they are interested, where they do want to acquire as much product as they can.

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In the case of, for example, beef and pork, which we'll get to in a minute again, beef is notoriously income-elastic, in other words, as people get more affluent.

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As people get more affluent, demand for beef relatively increases, and as people get more affluent, the demand for pork relatively declines.

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They might still want to have more pork, but the proportion of income they want to spend on pork tends to fall.

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There's a shift from pork and into beef, the result of which is, again, in the long run, resources are shifted.

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Farmers begin to shift their resources from pigs and into cows in response to this general change.

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And this is why we can say that consumers really direct production.

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Consumers are really in charge of production rather than the entrepreneurs,

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who looks as if superficially in the short run are in charge.

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Consumers have to pay for the product.

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So, if for example, if this vertical supply line represents a current codfish catch and fish it down there on the dock,

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and they're sold fairly quickly, etc.

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etc. If the demand for codfish goes up and next few years the fishermen will go out and

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shift more into codfish and out of other fish or out of other things and so the next season

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or two seasons later they'll bring in more codfish as demonstrated by the shift in supply

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curve and then we'll have a permanent increase in the quantity of codfish and a drop back

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Well, let's see what we can do. Let's see the sort of thing economists, how economists can predict or explain a given price.

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For example, we can predict what's going to happen on the auction market. We can't make a quantitative prediction, we can't make a qualitative prediction.

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production. This is, I think, is indicative of what praxeology, so to speak, can say of

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the auction market. In the auction market, we have a supply curve of one. Supply lines

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say one. In the case of Rembrandt's or Chippendale, then that's it. There's no way of increasing

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it. But aside from the question of increasing it, we have a supply line of one, and we can

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say that the price of the auction will be set, at the Park Bernard galleries or wherever,

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Somewhere slightly above the maximum buying price of the second highest value-worth.

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That's what we can say.

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So that if Rockefeller and Vanderbilt are bidding for the next Rembrandt, and Rockefeller,

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we get down to, we start with a hundred bidders, as we work our way up, we have, we want to

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drop out of the demand curve, and we're left with Rockefeller and Vanderbilt, and Rockefeller

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is able to outbid Vanderbilt.

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In that case, Rockefeller will be bidding, will be paying just a little bit higher than the highest price that Annabelle is going to pay.

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That's what we can say. I mean, it's not, in one sense, it's not very much.

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On that basis, we can't predict tomorrow's auction market. On the other hand, we can say something.

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That's what we can say. We can analyze the prices on the basis of supply line and value scales.

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There is another room for four slopping supply curves. I don't want to get into too much.

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But just to mention, and that's speculation. The influence of speculation in markets where we can have speculation.

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You can't always have speculation, obviously. You're not going to usually have speculation, say, in the Wheaties market.

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Because speculation is usually on commodities, which are not brand names, which are certain fixed properties, and so forth and so on.

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In markets where you do have speculation, you have the influence of speculation is to enormously speed up the adjustment process, the total equilibrium.

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So that instead of having a man curve, a regular flowing man curve, and say a vertical supply line, you'll have a very flat curve, both demand and supply.

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and Supply, because since the speculator is usually a pretty astute in knowing what's going to happen, not perfect, but they can usually fairly well guess where the intersection point is going to be, then if the price is considerably below where they think it's going to be, they're going to buy a lot of it and sell very little of it, because they expect the price to go up, and this way they're going to have a big gap between demand and supply, a big shortage, so to speak, and the price will scoot upward very quickly.

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the prices above it, they think it's going to be an equilibrium price, they're going to sell a lot of it, and they're going to buy very little, the result of that is going to be a big surplus, and the price is going to scoop back down to equilibrium very quickly, so the result of speculation, even though it's a very malign occupation usually, most people don't understand the economic function of speculation, but the economic function of speculation is to speed up the adjustment process on the market,

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to the equilibrium level.

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Those speculators get quite a little guess incorrectly,

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of course lose out, find themselves with unsold stocks, etc.

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And so the result of this is those people are lousy speculators,

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drop out of the market, and those people are good speculators, continue on,

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and the tendency then is to have sort of crackerjack speculators,

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doing very well in adjusting the price system.

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Also speculators would do things like buying when something is in relative abundance,

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when a commodity is in relative abundance now,

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holding it until it's going to be in short supply later,

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and say in the strawberry season or something like that,

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holding it until it's out of season and then selling it at that point.

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By doing this, the speculator tries to smooth out the fluctuation of prices by raising the price during the relatively abundant season and lowering it during the relatively scarce season,

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and thereby shifting the supply the way the consumers more demand it, in other words, consumers more anxious to get it, say, during the out-of-season,

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so the speculator holds onto it and then sells it at that point and smooths out the process there.

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So the speculators perform a very important function.

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Okay, there are various types.

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This is essentially the economics of the individual price,

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both in the immediate run for the vertical supply line and the longer run

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as that forward sloping supply curve takes into account all the max adjustments.

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You know, I got to the question of the relationships between prices in different products.

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The first place is a general relationship between oil prices, that oil goods are competing for the consumer dollar.

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In that sense, oil goods compete with each other and oil goods are substitutes in a way for each other.

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And we can say that if there's a demand for hula hoops...

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One thing we can say, something I think I mentioned last time, when demand for hula hoops goes up,

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So, the demand for something else has got to drop because you're paying more, you're buying

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more hooahooks or more widgets, it means you're spending more money on this product, it means

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that somehow you have to offset this by spending less money on something else because your

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consumer income is considered given.

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So that's one way in which all products are interrelated on the market.

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But let's get a little closer, kind of closer relationships than just, than this just general competition for the consumer dollar.

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Basically, there are two kinds, substitutes and complements.

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Substitutes are close substitutes in this case, not just the competition for the consumer dollar, but beef and pork, butter and margarine, close substitutes.

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We saw the influence of close substitutes in the late, late unlimited meat shortage

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When beef was extremely scarce, the price of beef was going way up in response to the scarcity and people began to shift to substitutes for beef, lamb, chicken, soybeans or whatever.

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So all these things began to go up in demand in response to the increased scarcity of the substitute product.

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So then we began to see that important relationships between them.

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Okay, with substitute products, there are two kinds of interrelationships, one if the demand of one changes and the other if the supply of one changes.

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If the demand changes relatively to the other, there's no problem, it's very easy to see what happens.

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For example, a beef lamb case that I mentioned before, beef pork case.

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As people get more affluent, usually the demand for beef goes up and the demand for pork drops.

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And then what simply happens is that the price of beef tends to go up,

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the quantity tends to go up as the resources shift into it,

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and the price of pork tends to fall, and the quantity of resources devoted to pork tends to fall, so it's very simple.

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As you have a shift on the value of scales from pork to beef,

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demand changes respond to reflect that, and price changes and quantity changes in the long run reflect that also.

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So that's simple.

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A couple of more complicated relationships in the substitute field and the cases of change in supply.

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For example, beef, pork, this is figure three.

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Here we have two substitute supply and demand curves, say beef and pork.

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Now we're dealing with a forward-selfing supply curve as we're figuring it's a long run.

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Well, that makes some time for relationships to change.

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Here's the beef and pork.

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Now, let's say we have our late, unlemented meat shortage and supply curve of beef shifts radically to the left.

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Why it shifts to the left is another story, which we'll get to soon.

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And it could be, in the case of a beef shortage this year, because the government messed everything up, it could also be a lot of possible reasons, a beef, you know, hoof and mouth disease strikes the middle west, or whatever, so the big shift in the supply curve of beef to the left, in that case, of course, the quantity of beef sold drops and the price goes up, in response to that, since beef is now scarcer and more expensive,

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The shift in demand for pork and how those increases, in other words, the demand curve for pork shifts to the right.

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So the demand curve for pork can be a response to either the values for pork shifting in relation to beef, in relation to anything else,

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or a response to the substitute relationship of price, the fact that the beef prices are getting either cheaper or more expensive.

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If beef prices are getting more expensive, then the demand curve for pork will tend to go up, as we saw happen,

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and the result of this will be eventually an increase in the pork price and an increase in the quantity of pork.

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And so we wind up, after all this has happened, with both beef prices and pork prices going up,

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and the eventual result of all this, the difference being that resources devoted to beef are going down, supply of beef is going down,

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The supply of pork is going up. There's more resources of shifting in the pork area.

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Of course, the quantity here doesn't have to be the same. It doesn't have to be the same price increase.

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It all depends on the flatness or steepness or elasticity, as it's called, of these four curves.

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So, and the same thing happened, incidentally, with lamb and chicken, etc., and soybeans.

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In the 1973 shortage, the tendency is for all these things, demand curves to go up in response to the higher price of the other substitute.

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If, on the other hand, what usually happens in the market is things get cheaper as productivity increases and new hormones are discovered or whatever,

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in that case, the opposite happens, the pie of beef shifts to the right, the price of beef gets cheaper,

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As the price of beef gets cheaper, the cut is more competitive than pork, the demand curve for pork shifts to the left, declines, in other words, the price of pork declines to meat it, and the result is a shift of resources out of pork and into beef, or out of lamb and into beef.

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So the resulting price change is about similar, but the thing is the impetus is very different.

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Here you have the impetus coming from the change in supply, and there you have a necessity to meet the competitive price of the other, of the substitute.

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Okay, that's the beef, pork, and substitute paper they sometimes report to different producers try to get the government to change the rules of the game, so to speak.

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In other words, the C2 of the substitutes don't show up or are crippled.

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For example, for many, many years, the butter industry was trying to keep margarine, which was, of course, a big substitute for butter, trying to hobble the production of margarine, the sale of margarine.

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They had laws passed outlawing the coloring of margarine yellow, because margarine was originally stark white or something, and people didn't like it.

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We used the idea of spreading yellow on bread, so this is a big deterrent, people didn't buy margarine for many years because it looked icky, because the butter interests had passed a law preventing them from coloring in yellow, finally after a titanic struggle by the margarine interests against the butter interests, the margarine interests were finally allowed to color the margarine yellow in the rest of history. I mean, I'm thinking margarine is everywhere now. It took many years to break margarine through this political barrier.

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Okay, that's substitutes. The other big relationship between products, there are substitutes, and there are lots of substitutes all over, if you can imagine, just all over the place.

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Also in production as well as consumption, aluminum and steel, let's say. Substitutes are generally partially a leaf and then producing a lot of things.

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So there are substitutes, which are related in this way. There are also complements, complements with an E, that is.

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Complements meaning products that go together in some way. There are two types of complementary products, each of which are completely different.

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One is a product in joint demand, the other a product in joint supply. As I say, they're completely different.

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Joint demand product is a product which goes together.

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In other words, one or two or three or four, two or three or four products that for some reason are demanded together, that go together in consumption.

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And this can be, for example, bread and butter is an excellent example.

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Usually, if you have an increase in the demand for sandwiches and both bread and butter are demanded together,

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that's not an absolute correlation because there's also mayonnaise and stuff.

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Basically, there's a certain correlation there between the man for bread and the man for butter.

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Also, for example, when a whole activity has increased in the man for example,

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the increase in the man for baseball means the increase in the man for baseball,

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gloves, bats, ball boys, umpire services, stadia, the whole business is an enormous series of complementary goods

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that go together with the whole baseball package.

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So, these are products in joint demand. Again, it's easy to see what the relationship on the man's side, I mean, if the man for baseball goes up, then the man curve for baseball, for baseball gloves, for bats, for ball boys, for pitchers, all these things, the man for all these, almost infinite number of things, not infinite, but an infinite number of things goes up, and the price will tend to go up, and the quantity will tend to go up.

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The man for the whole thing. For example, bullying was a great disrepute for many years before the big post-war comeback.

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And so the man for bullying fell. The man for pinboys fell. The man for bullying equipment and bulls and alleys and all the rest of it.

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And almost the man fell. And the impact of this fall or rise depends on the steepness, so to speak, of the different supply curves, which we'll get to later.

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But, so it's easy to see what are the impact of changes on the man's side for joint demand product.

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The tricky thing or the complicated thing comes with changes in the supply side.

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For example, let's take bread and butter. This is figure four.

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Price on the y-axis, on the x-axis, and we have bread and butter.

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And I suppose there's a big increase in the supply of butter for some reason, there's a big increase in butter productivity, some new invention, some new way of producing butter, which causes an enormous increase in supply.

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So we have a big increase in supply curve of butter, and the price of butter then falls starkly.

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What then happens on the, what's the influence on the price of demand for bread?

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Well, the influence is, not only is butter cheaper, but now sandwiches are cheaper.

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So, sandwiches are cheaper, this will induce people to buy more bread because they want to buy more sandwiches.

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The result is an increase in the man curve for bread, B prime.

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So, this means that the man curve for bread is induced by what happens to the supply,

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In this case, butter is much cheaper. This means the bread becomes more expensive. More people will eat sandwiches. The quantity produced and sold with butter increases. The quantity produced and sold with bread increases. More people will wind up eating sandwiches, but the net result of this whole business is the price of butter falls and the price of bread goes up.

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The other thing that's happening is the supply of bread.

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There's been no increase in bread productivity or technology or anything.

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Bread is still cooking along the same way it would have been before.

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And all that happens now is an increase in there for bread,

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so you're going up the given supply curve and you get this kind of a relationship.

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And, again, vice versa.

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If there's a big cow shortage for some reason,

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if a big dairy cattle is struck by the red bucellosis disease or something,

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and half of the dairy cattle are wiped out,

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Supply curve of butter shifts to the left, butter becomes more expensive, and people then cut down on their purchase of sandwiches.

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As they do that, the demand curve for bread drops, the price of bread will fall.

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That's the other side of the coin of the butter-bread relationship.

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So, that's the joint demand caper.

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And I think again it's easy to see once it's pointed out what the relationships are between products and joint demand.

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And changes from the supply side will then read down, see the result will be an opposite change, you know, the man for the other complement.

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And the same thing would happen in baseball, but there the effect is quantitatively so small it becomes a little bit ludicrous, but it's so rare.

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For example, if there's a tremendous increase in bat productivity,

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the bat making, I don't know how they make bats, but presumably it's a machine that does it,

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there's a big increase in bat productivity, and bats become much cheaper.

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Supply curve for bats shifts to the right, there's a big drop in supply of them and the price of bats.

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This induces more people to play baseball, and the man curve for all the other things goes up.

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I mean, the effect is obviously so small, the price of bats doesn't mean much in the whole baseball picture.

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So, there'll just be a teeny increase in the man cover of these other things for uniforms, bullboys, and so on,

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and qualitatively, the effect will be there.

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Since economics is a qualitative discipline, qualitative science, so to speak, we should mention that.

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Okay, that's the joint demand situation.

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And joint demand, by the way, also, of course, applies to factors of production.

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When widgets are produced, or beef is produced, or whatever,

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there are all sorts of factors of production, different types of labor, capital, land, etc.,

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are jointly demanded to produce this thing, and that this, so a lot of the joint demand analysis could apply there too.

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If the increase of demand for steel, an increase of demand occurs also for steel producers, steel equipment,

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raw steel, steel factories, the whole business, steel workers, and so on and so on.

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So all these things are demanded together.

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Okay, next is joint supply.

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Joint supply is very different than joint demand.

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Joint supply is when two products or more products are produced.

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Joint demand is a situation where they're produced for the same market,

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you know, the baseball market, the sandwich market and whatever.

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Joint supply is two things which have completely different markets.

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They're just technologically wrapped up together, there's no way to get around that.

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In other words, joint supply is a purely technological question.

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For example, right now the silver mine, especially in the United States,

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silver and copper are wrapped up together.

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So when you're mining more silver, you're also mining more copper, and vice versa.

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Well, this means that you have peculiar kinds of market relationships.

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Again, in the case of joint supply, it's very easy to see what happens

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As a change, this time a supply of something.

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In other words, if the silver-dash copper miners go down into Nevada, or Colorado, or wherever, and mine more silver and copper,

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it's easy to see what happens, and the supply curve of silver and gold will increase, the price of silver will fall,

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and the supply curve of copper will increase, and the price of copper will fall, and that'll be it.

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In other words, supply curves in both markets will increase.

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The complicated question comes, what happens when the demand curve for one of these things goes up?

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For example, say this is copper and silver.

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Actually, the famous case is beef and hides.

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You know, the cow, where the meat goes to the beef market and the hides go to the leather market.

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And they're two completely different markets.

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There's no relationship between the leather and the beef market.

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It just so happens that it's the same thing that's applied here.

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So, let's say you have the man and supply curves again for the two, figure four, two joint supply items, whether it's copper or silver or beef and highs.

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And let's say there's a big, let's take beef and highs and make this more spectacular difference there.

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Copper and silver, they're both binary material.

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Let's say there's a big increase in the man for beef, as there often is.

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Okay, so man for beef goes up, and in response to this, and the price of beef goes up, in response to this, the long run supply for the quantity of beef increases, we have this shift from one equal room point to another.

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Okay, that's fine, but what happens here is, in response to producing more cattle, and getting more cows in the market, and responding to the increase in beef production,

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The result of this is that willy-nilly, in the spiky best efforts of the producers, more hides come on the market, more leather comes on the market.

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The result of this is a big increase in supply curve of leather.

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In other words, the increase in quantity, responding to an increase in demand curve for beef, willy-nilly depresses the leather market or leads to a fall in supply of leather.

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And other people might gnash their teeth or whatever, there's not much they can do about it.

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So this is, so again we see sort of an opposite situation here, the increase in the man evoking greater supply,

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which in turn increases the supply curve of a complement, a joint supply complement,

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which lowers the price of that complement.

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It's the same way of a copper and silver, just to hear this more dramatic difference.

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Again, contrary-wise, there's a drop in the man from beef, and the result of this is the price of beef falls and less cattle being produced.

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The result of that would be an increase in supply curve, excuse me, a formal supply curve in the leather industry and a shift in leather prices upward because of this joint supply kind of situation.

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Okay, that's the joint supply business.

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Again, in the case of joint supply, there are attempts, sometimes successful businesses, to create their own demand for the joint supply, for the by-products, in quotes.

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By-products are often wasted resources, which are no use for, but have to be produced as part of a regular production.

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Well, the famous point, at least as far as I'm concerned, is a case of fluoridation of water supply.

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Economists tend to be, I wouldn't say cynics, some people could say cynics, other people could say realists, analyzing government action.

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We tend to look for the economic motive involved, and we tend to check if the economic motive is consistent with what happened,

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and also the lobbying activity, we tend to say, well, you know, it seems to be a pretty good case here.

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As is true in the case of fluoridation, setting aside all the arguments, the health arguments, both for and against fluoridation.

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In the case of fluoridation, we had an unwanted by-product of aluminum production.

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Aluminum production also produces, along with it, sodium fluoride, unwanted, unwept and unsung,

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which was originally dumped wherever industries dump their waste.

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Then the forward Asian movement comes in and lo and behold we have a happy byproduct,

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a happy increase in demand for the joint supply waste products,

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which now gets dumped, which now gets purchased from our collect.

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It gets dumped on everybody's water supply continually.

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It's a continuing market, it might not seem so much, but it's a steady thing

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because people are always making water and always dumping the stuff in the water supply.

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Okay, now if the economists looking at this situation will tend to at least hypothesize

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that maybe there's a certain relationship between the yen for fluoridation, which suddenly

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appeared upon us in the late 40s and early 50s, and Alcoa's need for extra bought, for

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for Extra Demand for its only waste product, and also, and I don't want to get into technical because I'm sure people here know more about chemistry than I do, but there's also a peculiar thing that those areas where water supply is naturally fluorinated, where kids have less cavities, these are areas where calcium fluoride is discovered in the water, not sodium fluoride, and the question arises, why isn't calcium fluoride dumped in? Well, first of all, maybe calcium is

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Why isn't calcium fluoride dumped in the water instead of sodium fluoride?

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Perhaps the answer is that with calcium fluoride, there ain't no by-product of aluminum production.

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Getting to the punchline of this, the guy who really pushed this whole thing, pushed fluoridation very heavily,

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was I believe the first secretary of Health, Education and Welfare at the Truman administration, Mr. Oscar Ewing,

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was known as a very progressive leader in America's democratic action and so forth.

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After pushing fluoridation, getting the whole thing launched and getting all the medical profession, public health profession behind it, et cetera,

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he then left the government to return to his law practice, which also happened to be chief counsel, partially chief counsel of the aluminum corporation of America.

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Now, there we have it. There's the wrap-up.

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Now, either this is, depending on your general philosophy and point of view, either this is a computer coincidence,

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or else we tend to look more with a joinless eye on this so-called public welfare operation.

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Okay, that's the alcoa caper.

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The free market economists are accused of being apologists for big business.

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I think we're only apologists for big business and their activity on the market, not their activities in government.

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A completely different set of rules and consequences follow.

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Before I press on some more of the demand curve and supply curve analysis,

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I just say something about the benefits of exchange.

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I should have mentioned before.

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The exchange system is a system where both parties to each exchange benefit.

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Actually, the free market economy, even though it looks to be very complex, in a sense it is,

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consists of millions of participants, literally.

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It's still a consistent, it's really a network or a latticework of unit exchanges of two people,

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or two groups, or two parties.

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So when I buy my newspaper for 15 cents, I'm...

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and there's me and the newspaper dealer, or somebody who works for a corporation,

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is him and the corporation who are dickering for their services.

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So what you have is a whole network of these unit exchanges.

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In each case, in each unit, both parties to the exchange think that they're better off by making the exchange.

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In other words, when I buy a newspaper for 15 cents, I value the newspaper more highly than I value the 15 cents.

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On my value scale, the New York Times is higher, greater than 15 cents.

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The other hand, the news dealer, who has plenty of New York Times, is up to here in New York Times.

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This 15 cents obviously is worth more to him than New York Times.

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So we have a double inequality of values, a reverse inequality of values,

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which sets up the conditions for exchange.

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Bicurially enough, a lot of classical economists, including especially Karl Marx,

372
00:40:48.360 --> 00:40:51.360
looked at the exchange system, looked at prices and said,

373
00:40:51.360 --> 00:40:55.360
aha, because, let's say, a newspaper is 15 cents or whatever,

374
00:40:55.360 --> 00:41:02.360
Therefore, there must be some sort of equality of value between the newspaper and the 15 cents, or between the newspaper and some other thing that costs 15 cents.

375
00:41:02.360 --> 00:41:07.360
And he looked around for what is the thing which makes these two things equal in value.

376
00:41:07.360 --> 00:41:12.360
Is it weight? No, obviously it isn't. The newspaper doesn't weigh as much as half a loaf of bread or whatever.

377
00:41:12.360 --> 00:41:18.360
Or is it volume? Couldn't be that. And he finally wound up with this crazy labor-hours doctrine.

378
00:41:18.360 --> 00:41:23.360
But the problem was really in the beginning of his questions, his analysis, which is

379
00:41:23.360 --> 00:41:28.360
There must be something equal in value between two things which have the same price, because the whole point of exchanges is

380
00:41:28.360 --> 00:41:32.360
nobody would exchange them at all unless they were unequal in value.

381
00:41:32.360 --> 00:41:36.360
If I really, to me the fifteen cents was exactly equal in value with a newspaper,

382
00:41:36.360 --> 00:41:39.360
I wouldn't bother buying a newspaper because it's, you know, it's a certain costliness,

383
00:41:39.360 --> 00:41:44.360
a certain cost involved in buying a newspaper and going there and schlepping there, etc.

384
00:41:44.360 --> 00:41:48.360
Similarly, no exchanges would ever take place at all if everything was equal in value.

385
00:41:48.360 --> 00:41:57.860
The whole point, also, if the New Deal had preferred the time for the 15 cents for some reason, there'd be no basis for exchange either.

386
00:41:57.860 --> 00:42:05.360
There has to be a reverse inequality. There has to be a situation where both of us have a reverse value scale for the product.

387
00:42:05.360 --> 00:42:15.860
So, because of this, because of these reverse value scales, we have exchanges all over the place, where CUSA has a surplus fish or whatever,

388
00:42:15.860 --> 00:42:20.860
Exchanges, Friday, so forth, Lumber and so forth, and so on, all the way down the line.

389
00:42:24.860 --> 00:42:31.860
Okay, proceeding on with the demand-supply curve, et cetera, there's one famous property, and I think it's important,

390
00:42:31.860 --> 00:42:38.860
which demand curves and supply curves both have, which is important in analyzing them.

391
00:42:38.860 --> 00:42:43.860
Look at it very simplistically, it can be called a flatness or steepness.

392
00:42:43.860 --> 00:42:57.560
In other words, if the supply curve stays very steep and the man curve increases, then you have a very huge increase in price and a very small increase in quantity.

393
00:42:57.560 --> 00:43:00.060
In the case of Rembrandt, you have no increase in quantity.

394
00:43:00.060 --> 00:43:13.360
On the other hand, if the supply curve is quite flat, say, nails, we can produce a lot more nails very quickly, then a given increase in demand will cause a small increase in price and a large increase in quantity.

395
00:43:13.360 --> 00:43:28.360
So the flatness, or the steepness of the manner of supply curve, is evidence of how much of the reaction takes place and will take place in the quantity area and how much will take place in the price area.

396
00:43:28.360 --> 00:43:34.360
Now the usual definition, textbook definition, this is called elasticity as well as the flatness, by the way.

397
00:43:34.360 --> 00:43:44.360
Of course, one very important point is that it depends, you can't just say flat or steep, it depends also on what the scale is here, what's the ordinal scale.

398
00:43:44.360 --> 00:43:49.360
You have to have a given scale before you can talk about relative flatness.

399
00:43:49.360 --> 00:43:55.360
At any rate, this relative flatness is called elasticity.

400
00:43:55.360 --> 00:44:07.360
The term elasticity, once again, is a feeble attempt at aping physics, where economics is filled with jargon, attempting to ape the physical science.

401
00:44:07.360 --> 00:44:11.360
The elasticity sounds like you're extending a spring and how much of the spring jumps back.

402
00:44:11.360 --> 00:44:20.360
The tendency is always to leave human action out of the picture, leave people out of the picture talking about springs and weights and stuff like that.

403
00:44:20.360 --> 00:44:26.360
So it's illegitimate that it's used anyway, so I can, with that caveat, keep using it.

404
00:44:26.360 --> 00:44:35.360
The usual textbook definition of elasticity is percentage change in quantity divided by percentage change in price.

405
00:44:35.360 --> 00:44:42.360
In other words, if the quantity changes a great deal in relation to change of price, then it's very elastic.

406
00:44:42.360 --> 00:44:47.360
If the quantity changes a small amount in relation to change of price, then it's very inelastic.

407
00:44:47.360 --> 00:44:52.360
Now, I personally don't like this definition because I don't think, well, for various reasons.

408
00:44:52.360 --> 00:45:00.360
For one thing, which is something we have to repeat again and again in this course or any other economic lectures,

409
00:45:00.360 --> 00:45:02.360
is that nobody knows what the elasticity is.

410
00:45:02.360 --> 00:45:10.360
When you begin to have, as you're playing around with these curves, the curves take on a fascination of their own, take on a life of their own.

411
00:45:10.360 --> 00:45:14.360
People actually begin to think that the curves are there and everybody knows what they own, and they start trying to measure them.

412
00:45:14.360 --> 00:45:16.360
You can't measure them because nobody knows what they own.

413
00:45:16.360 --> 00:45:20.360
One, nobody knows what they are, and two, they keep changing all the time.

414
00:45:20.360 --> 00:45:29.360
You can't really measure them. You can try to approximate, try to figure out how elastic is the man curve for sugar and that sort of stuff.

415
00:45:29.360 --> 00:45:35.360
A lot of time and energy and resources and journal articles have been wasted on that sort of stuff.

416
00:45:35.360 --> 00:45:38.360
People come up, here is the man curve for cotton.

417
00:45:38.360 --> 00:45:43.360
It's impossible to figure out what the man curve for cotton is because the man curve is instantaneous.

418
00:45:43.360 --> 00:45:45.360
The man curve keeps changing all the time.

419
00:45:45.360 --> 00:45:50.860
The so-called measurement always assumes that the man curve stays the same for about 20 years.

420
00:45:50.860 --> 00:45:57.360
And then if it stays the same, then you can plot the various production points on the so-called man curve.

421
00:45:57.360 --> 00:45:58.860
This gives you the man curve.

422
00:45:58.860 --> 00:46:01.360
It's pure nonsense because the man curve keeps changing.

423
00:46:01.360 --> 00:46:06.360
The whole basis of the subjective valuation of people and these subjective valuations keep changing.

424
00:46:06.360 --> 00:46:09.360
So nobody knows what they are. Nobody can measure them.

425
00:46:09.360 --> 00:46:17.360
Therefore, using percentages and percentage changes gives us furious precision to the whole thing, which it really doesn't deserve.

426
00:46:17.360 --> 00:46:19.360
This leaves the public.

427
00:46:19.360 --> 00:46:28.360
Second of all, another thing that this definition of elasticity does, it doesn't focus on what I maintain as an important problem of elasticity,

428
00:46:28.360 --> 00:46:32.360
because it makes the supply curve and the demand curve similar.

429
00:46:32.360 --> 00:46:35.360
In other words, it looks at the steepness or flatness of both.

430
00:46:35.360 --> 00:46:43.360
So, whereas the demand curve elasticity is a much more important question than the supply curve elasticity,

431
00:46:43.360 --> 00:46:45.360
it's a very different question.

432
00:46:45.360 --> 00:46:49.360
See, the supply curve, quantity and price are really moving together.

433
00:46:49.360 --> 00:46:54.360
In other words, if the quantity, at the low point of the supply curve, the forward sloping supply curve,

434
00:46:54.360 --> 00:46:58.360
price is low and quantity is low, and up here, price is high and quantity is high.

435
00:46:58.360 --> 00:47:02.820
So the two things are

436
00:47:02.820 --> 00:47:09.820
The two things are always moving in the opposite direction, when price falls and quantity demanded increases, vice versa.

437
00:47:09.820 --> 00:47:20.820
So here, where the demand curve, you have a very important kind of question, which is that the area under the demand curve keeps changing in response to these two forces moving in opposite directions.

438
00:47:20.820 --> 00:47:26.820
And this area tends to be very important because that's the total revenue a business or industry gets.

439
00:47:26.820 --> 00:47:34.820
Extremely important to a firm or an industry to figure out whether a price change will cause a drop in revenue or increase in revenue.

440
00:47:34.820 --> 00:47:36.820
For example,

441
00:47:44.820 --> 00:47:48.820
let's say we have a column, say this is widgets.

442
00:47:48.820 --> 00:47:52.820
Prices of widgets, quantity of widgets,

443
00:47:52.820 --> 00:48:22.820
And if the price of a widget is $10 a case, the quantity of a widget, say, is $1,000, people sell $1,000, if the price drops to $9 a case, let's say they sell more, we don't know how much more, let's say $1,100, let's say $1,200, in that case, the total revenue is equal to the price times the quantity, obviously if you're selling a thousand cases of widgets for $10 a widget, your total income or total revenue would be $10,000.

444
00:48:22.820 --> 00:48:35.820
In this case, you're selling $1,200 at $9, and it's $10,800 in total revenue.

445
00:48:35.820 --> 00:48:41.820
Alright, so in this case, you have a situation where the price is falling and the quantity is increasing.

446
00:48:41.820 --> 00:48:44.820
The quantity is increasing more than the price is falling proportionally,

447
00:49:14.820 --> 00:49:38.820
The total revenue is now dropped from $10,000 to $9,450 with a fall in price.

448
00:49:38.820 --> 00:49:43.820
So here you have a situation where the area is less, the demand curve is steeper.

449
00:49:43.820 --> 00:49:48.820
and the result of the fall in prices is a drop in total revenue.

450
00:49:48.820 --> 00:49:53.820
So the thing is, it's not just sort of a playing around with measurements here.

451
00:49:53.820 --> 00:49:57.820
The problem with the question is, what happens to total revenue if the price changes?

452
00:49:57.820 --> 00:50:01.820
In the former case, I call this elastic.

453
00:50:01.820 --> 00:50:10.820
The definition of an elastic demand curve, in my view, is when the price falls, total revenue goes up.

454
00:50:10.820 --> 00:50:17.820
On the other hand, if the price falls and the total revenue declines, that is my definition of inelastic demand curve.

455
00:50:17.820 --> 00:50:23.820
So the difference, according to this definition, between inelastic demand curve and inelastic demand curve,

456
00:50:23.820 --> 00:50:31.820
centers around not the percentages one way or the other, it centers around whether the total revenue is going up or going down as the price falls.

457
00:50:31.820 --> 00:50:46.820
The point is that this is not a given thing throughout the whole demand curve.

458
00:50:46.820 --> 00:50:49.820
You can see me when you know what the demand curve is.

459
00:50:49.820 --> 00:50:55.820
Just because it's elastic or inelastic in one zone doesn't mean it's going to continue to be elastic or inelastic throughout the whole area.

460
00:50:55.820 --> 00:51:09.820
on the other, quite the contrary, but it will happen, but as you keep raising the price, you're going to wind up, probably you're going to wind up with a much lower total revenue curve.

461
00:51:09.820 --> 00:51:21.820
The opposite of this, by the way, the other side of the coin is saying that when total revenue increases as price falls, that means you have an elastic demand curve.

462
00:51:21.820 --> 00:51:28.820
The other side of the coin of that is that when total revenue decreases as the price rises, you have an elastic demand curve.

463
00:51:28.820 --> 00:51:43.820
So, an elastic demand curve, or elastic area of the demand curve, I should say, is when total revenue increases as the price falls,

464
00:51:43.820 --> 00:52:13.320
Or, total revenue decreases as the price rises, this is the same thing, and inelastic demand curve is when total revenue decreases as the price falls, or total revenue increases as the price rises.

465
00:52:13.820 --> 00:52:22.820
And even with the most inelastic demand curve, you're not going to get a situation where you're going to raise the price indefinitely and still have an increase in total revenue.

466
00:52:22.820 --> 00:52:26.820
Obviously, you're going to eventually wind up in the elastic zone of any demand curve.

467
00:52:26.820 --> 00:52:36.820
So even if everybody is a late Wheaties fan, when you push the price of Wheaties up to $10 a box, you're going to be falling off the total revenue of the Wheaties.

468
00:52:36.820 --> 00:52:43.820
Relative to how inelastic the macro for weedies might be, if it is indeed inelastic.

469
00:52:43.820 --> 00:52:51.820
Now this question of elasticity, you know inelasticity becomes extremely important for businessmen or industry to figure out

470
00:52:51.820 --> 00:53:00.820
what's going to happen when I lower the price or raise the price, what's going to happen with total income, or revenue in this case.

471
00:53:00.820 --> 00:53:11.820
Now, for example, many disputes, we've had in New York City several taxi strikes in the last few years, beginning to blend, beginning to be a blur in my memory, but at any rate,

472
00:53:11.820 --> 00:53:19.820
in each of these cases, usually the dispute between the taxi industry and Mayor Lindsay is revolved around elasticity of the man curve for taxis.

473
00:53:19.820 --> 00:53:28.820
The taxi industry has said we need a higher price and so forth and so on, and therefore we should have a 50% increase or 20% increase or whatever,

474
00:53:28.820 --> 00:53:33.820
And the Lindsay administration claimed that the land curve for taxis was elastic.

475
00:53:33.820 --> 00:53:41.820
The claim was, no, no, if you increase your price by 50% or 20%, you're going to have a more proportional dropping off of demand, so your total revenue will decline.

476
00:53:41.820 --> 00:53:45.820
That was essentially the Lindsay argument.

477
00:53:45.820 --> 00:53:49.820
And then there was fighting back and forth, and then they get the fair increase.

478
00:53:49.820 --> 00:53:51.820
And so far, the Lindsay administration has been incorrect.

479
00:53:51.820 --> 00:54:03.820
In other words, so far we've been in an inelastic demand zone, so as the fare, the price is going up, total revenue is going up.

480
00:54:03.820 --> 00:54:10.820
However, the last time they had a taxi fare increase, which was a huge whopper, remember, about 50 percent,

481
00:54:10.820 --> 00:54:15.820
we almost got, it was a beautiful glorious thing to watch, we almost got to the point of elasticity.

482
00:54:15.820 --> 00:54:30.820
As many taxi drivers report after many months that their income went down because the fare went up at 50% or their number of fares went down by 60% or whatever.

483
00:54:30.820 --> 00:54:38.820
So in other words, we were sort of at the critical point there of elasticity.

484
00:54:38.820 --> 00:54:51.820
And the interesting point here is that the government or government regulated industry in this situation doesn't know what emblazons to do about it, will not know what emblazons to do when they reach this gloriously elastic point.

485
00:54:51.820 --> 00:55:00.820
Someday this will come, someday when they raise the subway fare to a dollar or ten dollars or whatever it's going to be, they're going to find out when they raise it that the total revenue has gone down.

486
00:55:00.820 --> 00:55:05.160
Because the tendency of most, despite my thing about the Lindsay administration,

487
00:55:05.160 --> 00:55:10.460
the tendency of most government agencies is to assume that the manhood is vertical.

488
00:55:10.460 --> 00:55:13.700
That's really their tendency, so if they want a 20% increase in revenue, they figure,

489
00:55:13.700 --> 00:55:15.900
all right, we'll raise the fare by 20%.

490
00:55:15.900 --> 00:55:19.500
And they tend not to think about the falling off in quantity.

491
00:55:19.500 --> 00:55:22.420
It has an enormous falling off in quantity, which I have the figures with me,

492
00:55:22.420 --> 00:55:27.220
falling off the quantity of subway fares in New York City

493
00:55:27.220 --> 00:55:31.220
since 1948 or whenever they changed the nickel fare.

494
00:55:31.220 --> 00:55:35.580
In other words, the number of fares, even though the population has gone up since

495
00:55:35.580 --> 00:55:40.420
some extent anyway since 1948, and the number, certainly in the metropolitan area, and

496
00:55:40.420 --> 00:55:44.060
income has gone up and inflation and all that, despite that,

497
00:55:44.060 --> 00:55:47.500
the number of subway rides

498
00:55:47.500 --> 00:55:50.740
has gone down considerably by many percent

499
00:55:50.740 --> 00:55:52.420
since 1948.

500
00:55:52.420 --> 00:55:56.340
And this is another thing people don't realize, they figure, well, people have to ride to work and therefore there can't be any

501
00:56:26.340 --> 00:56:48.340
So another peculiar area of elasticity, which is pretty obvious, I think, among consumers,

502
00:56:48.340 --> 00:56:49.340
is movies in New York.

503
00:56:49.340 --> 00:56:55.900
There was an old moviegoer in New York, I've seen a situation develop where nowadays you

504
00:56:55.900 --> 00:57:02.900
I'm not talking about the so-called art movies are doing very well, the Sturt Avenue movies and that sort of thing.

505
00:57:02.900 --> 00:57:12.900
But the little neighborhood movies where you have 2,000 seats, and if you go in there on Saturday night or Friday night or whatever and five people are sitting there, it's like a private showing,

506
00:57:12.900 --> 00:57:24.900
It would seem fairly obvious that a ticket of $3.50 and five people sitting in the theater

507
00:57:24.900 --> 00:57:29.900
would seem to the movie exhibitor, or maybe the thing to do is to cut the price.

508
00:57:29.900 --> 00:57:36.900
And there have been some cases in the last couple of years when the price has been cut, say, to a dollar or a dollar fifty, and the whole theater is flooded.

509
00:57:36.900 --> 00:57:40.900
The movie has a $2,000 ticket, $2,000 for a dollar and a half.

510
00:57:40.900 --> 00:57:45.900
It's going to be an enormous increase in revenue compared to $5,000 for a $3,000 ticket.

511
00:57:45.900 --> 00:57:50.900
But it's amazing how movie exhibitors don't seem to realize this.

512
00:57:50.900 --> 00:57:54.900
It's an elementary lesson in the elasticity of demand.

513
00:57:54.900 --> 00:58:00.900
But there have been certain cases in the neighborhood theaters that adopted a policy of $1.50 for a dollar a seat,

514
00:58:00.900 --> 00:58:04.900
and bingo, the place is jammed, regardless of the quality of the movie.

515
00:58:04.900 --> 00:58:09.900
There is less of any of you who might own a movie theater than you work. Cut the price.

516
00:58:17.900 --> 00:58:29.900
Okay, we can begin to use this supply and demand analysis. We're going to start looking at some case studies of kinds of prices, individual kinds of prices.

517
00:58:29.900 --> 00:58:39.140
There is, for example, a question which is in the minds and hearts of many people in

518
00:58:39.140 --> 00:58:40.140
the United States.

519
00:58:40.140 --> 00:58:44.940
Why is it that the medical and hospital prices are going up so fantastically?

520
00:58:44.940 --> 00:58:48.860
Aside from that, we know of course the prices are going up in general, so we're going to

521
00:58:48.860 --> 00:58:53.420
deal with a relative question of why prices of medical care are going enormously up, you

522
00:58:53.420 --> 00:58:57.900
know, the moment things later increase than regular prices.

523
00:58:57.900 --> 00:59:10.140
And again, the answer to this, and I'm not going to go from the expert in the area, but the answer to this area, can be found by analyzing both the demand side and the supply side.

524
00:59:10.140 --> 00:59:18.980
The answer being, there have been various ways in which the demand curve has artificially increased for medical care, thereby of course jacking things up.

525
00:59:18.980 --> 00:59:25.380
And there have been ways by which the supply of medical services have artificially remained or shifted to the left,

526
00:59:25.380 --> 00:59:29.380
I don't care what they could be or would be, thereby raising the price of medical care that way.

527
00:59:29.380 --> 00:59:32.980
So we have an artificial increase in demand, an artificial restriction in supply,

528
00:59:32.980 --> 00:59:40.380
the result is an artificial huge increase in price of medical care.

529
00:59:40.380 --> 00:59:51.620
Well, for example, it has been discovered that the big increase in the big, when medical

530
00:59:51.620 --> 01:00:00.980
care really took off, stratosphere and stratosphere, was I think the turn of 66-67, when they had

531
01:00:00.980 --> 01:00:05.300
this big acceleration and rate of increase in prices.

532
01:00:05.300 --> 01:00:30.300
And before that, before 66, 67, was going up, medical prices were going up considerably faster than the general cost of living, but not that stratospheric, like, it almost boggled the mind, you know, that 20 years ago when I first took out Blue Cross, the average hospital rate in New York City was $10 a day, and now it's something like $200, somewhere in that area.

533
01:00:30.300 --> 01:00:39.900
okay so the six in 66 to 67 there was enormous shift breakthrough in the rate

534
01:00:39.900 --> 01:00:54.780
of increase there was for example what from June 66 to June 67 the cost of

535
01:00:54.780 --> 01:00:59.260
living is going up by two and a half percent approximately that year medical

536
01:00:59.260 --> 01:01:09.260
Hospital care is going up by 10% compared to 4.5% the previous year, with a doubling of rate of increase, and hospital prices are going up by 25% in that year.

537
01:01:09.260 --> 01:01:14.260
So that seems to be the point of critical mass, so to speak.

538
01:01:14.260 --> 01:01:24.260
Did anything happen at 66? Yes, indeed something happened at 66, namely an enormous infusion of Medicare and Medicaid into the medical health picture.

539
01:01:24.260 --> 01:01:28.160
So what basically has happened since, first of all, since World War II,

540
01:01:28.160 --> 01:01:31.160
we have the Blue Cross and Blue Shield, etc.

541
01:01:31.160 --> 01:01:36.060
And since 1966, 1967, we have an enormous increase in Medicare and Medicaid.

542
01:01:36.060 --> 01:01:40.420
As a result of which, before World War II, almost nobody had medical insurance,

543
01:01:40.420 --> 01:01:42.840
maybe 10% or 5% of the population.

544
01:01:42.840 --> 01:01:47.420
Now almost everybody's got it. So now they don't let you into the hospital until they see your card,

545
01:01:47.420 --> 01:01:49.160
medical insurance card.

546
01:01:49.160 --> 01:01:53.240
Well the result of this situation is that since everybody's

547
01:01:53.240 --> 01:02:02.240
Medical payment is being recouped, it's not 100%, something close to it, by the insurer, either Blue Cross, Blue Shield, or the government.

548
01:02:02.240 --> 01:02:11.240
And of course the result of this has been an increase in demand curve almost to the stratosphere, because the government then underwrites everybody's demand curve for medicine.

549
01:02:11.240 --> 01:02:17.240
And since the government underwrites everybody's demand curve for medicine, the result of this, as we should know by this time, is an enormous increase in the price.

550
01:02:17.240 --> 01:02:24.240
If, in other words, before 1945, people could only afford $100 from appendix operations is what they paid.

551
01:02:24.240 --> 01:02:29.740
If now they can afford anything that the government will recoup, $1,000 or something, then why not?

552
01:02:29.740 --> 01:02:35.240
Because the taxpayer picks up the tab, so the doctor then charges $1,000 instead of $100.

553
01:02:35.240 --> 01:02:45.240
So this is, with this fantastic increase in demand curve, we have almost an unlimited underwriting of the consumer demand.

554
01:02:45.240 --> 01:02:49.240
This means the doctor can charge almost unlimited amounts, in the hospital even more so.

555
01:02:49.240 --> 01:02:56.240
The hospital is much closer to a so-called monopoly situation.

556
01:02:56.240 --> 01:03:04.240
A lot of cases where the medical insurance or Medicaid or Medicare are on the right hospital cost, but not non-hospital cost.

557
01:03:04.240 --> 01:03:09.240
So then the effect is to shove the person in the hospital as quickly as possible and then get the insurance rate.

558
01:03:09.240 --> 01:03:14.360
A shift of medical care toward the hospital, because the hospital is an authentic certified

559
01:03:14.360 --> 01:03:18.960
thing there, and the government, on insurance, will pay it.

560
01:03:18.960 --> 01:03:24.080
And the peculiar thing is now, after so many years of this, all of a sudden the medical

561
01:03:24.080 --> 01:03:28.560
authorities and the medical profession, medical, political profession, have suddenly gotten

562
01:03:28.560 --> 01:03:29.560
wiser of this.

563
01:03:29.560 --> 01:03:33.000
They say, hey, maybe there's been a relationship between the Medicare and the prices going

564
01:03:33.000 --> 01:03:34.000
up so far.

565
01:03:34.000 --> 01:03:43.000
by Dern, they finally woke it up to this, instead of finding out from economists what's going to happen, they went into a hard experience.

566
01:03:43.000 --> 01:03:46.000
This is the result of this situation.

567
01:03:46.000 --> 01:03:52.000
There's nothing, of course, that the patient public is not really that much better off than Medicare,

568
01:03:52.000 --> 01:03:57.000
because they have to pay its enormous amount anyway, and they make it up through taxes.

569
01:03:57.000 --> 01:04:13.000
That's essentially the demand side, and the supply side, you have situations that are going on for many years, keeping the supply curve back the way to the left.

570
01:04:13.000 --> 01:04:31.000
The watershed there was 1910, the black year of 1910, when the Carnegie Endowment Corporation, the Rockefeller Institute, and the Rockefeller General Education Board and the American Medical Association co-sponsored the famous Flexner Report after...

571
01:04:31.000 --> 01:04:37.000
I'm forgetting that was Abraham Flexner or Simon Abraham Flexner, they're both brothers, I think I got them mixed up.

572
01:04:37.000 --> 01:05:07.000
Dr. Abraham Fleck issues this report on medical education, the report swept the country, he said that most medical schools are low quality and they didn't meet his high standards and therefore they should be put out of business through the system of state licensing in medical schools, also hospitals, medical schools were the key, there weren't licenses for doctors before this, they weren't that important, the license for medical schools put a stranglehold on medical schools,

573
01:05:07.000 --> 01:05:18.000
The difference between the bar association and the AMA is this. You don't have to go to a certified law school in order to pass the bar exam.

574
01:05:18.000 --> 01:05:25.000
You want to be self-educated, be an apprentice to a judge, and that sort of stuff, and take the bar examinations that way, like Abraham Lincoln did.

575
01:05:25.000 --> 01:05:29.000
Not so many people do it now, but there are still people who do it, and this is honored by the legal profession.

576
01:05:29.000 --> 01:05:35.000
But in the medical profession, you can't just take the medical exam. You can't study on your own and be an apprentice to some doctor.

577
01:05:35.000 --> 01:05:45.000
Certified Medical School, certified by the state, the state appoints the Board of Licenses, which consists of appointees of the American Medical Association.

578
01:05:45.000 --> 01:05:51.000
So you have a state partnership of state and American Medical Association running the medical profession in every state.

579
01:05:51.000 --> 01:06:03.000
Also, this is supposed to be, of course, to ensure quality. Well, we'll get to that in a minute. The point is the supply curve is limited tremendously, shifted to the right.

580
01:06:03.000 --> 01:06:10.500
At the time, in 1900, 1905, there were 192 medical schools in the United States.

581
01:06:10.500 --> 01:06:21.500
Shortly after that, there were much less, in 1944 there were 69, in other words, half the medical schools in the country were put out of business by this process, the state refusing to license these medical schools.

582
01:06:21.500 --> 01:06:34.500
Well, and this persists if I go to the left, the number of physicians, 1900, 157 physicians per 100,000 people, 1957, 132 physicians.

583
01:06:34.500 --> 01:06:42.500
The physician shortage comes about, obviously, through this limitation by state licensing procedure.

584
01:06:42.500 --> 01:06:50.500
Well, I can say, well, this is a good thing because it's true we have to pay a higher price, but the quality is higher, because we have these state boards and state diplomates and everything.

585
01:06:50.500 --> 01:07:09.500
Well, all right, in the first place, the analogy there, the famous analogy is that, as if the government passed a law saying, from now on, since the consumers deserve Cadillac automobiles, no less than Cadillacs, we hereby pass a law outlining all cars that are inferior to Cadillacs in their construction, horsepower, whatever.

586
01:07:09.500 --> 01:07:18.500
And that would mean, of course, that anybody who could afford a Cadillac would get to enjoy Cadillac riding. On the other hand, the rest of us would have to work.

587
01:07:18.500 --> 01:07:22.220
the human being will buy cars at all

588
01:07:22.220 --> 01:07:24.140
so the

589
01:07:24.140 --> 01:07:27.780
the quality thing is a monopoly gimmick

590
01:07:27.780 --> 01:07:31.060
there's a more outstanding monopoly gimmick since the seventeenth century where

591
01:07:31.060 --> 01:07:33.180
production is outlawed on the basis of

592
01:07:33.180 --> 01:07:37.740
well this is a low quality and consumers don't deserve low quality stuff

593
01:07:37.740 --> 01:07:42.220
it's like saying we should outlaw plastic because really the non-plastic stuff

594
01:07:42.220 --> 01:07:45.660
the world is much higher quality, in a sense it is, on the other hand

595
01:07:45.660 --> 01:07:48.940
We might prefer a lower quality, a lower price.

596
01:07:48.940 --> 01:08:01.940
Why must I go to a Clark Avenue doctor in order to cure my hangnail? Why can't I go to a local herb specialist for a dollar, instead of having to spend $55 on a Clark Avenue physician?

597
01:08:01.940 --> 01:08:06.900
The consumer should not be deprived of a so-called low-quality service,

598
01:08:06.900 --> 01:08:11.580
if he wants a cheaper product.

599
01:08:11.580 --> 01:08:13.820
The

600
01:08:13.820 --> 01:08:23.820
Interestingly enough, who ran Dr. Abraham Flexner? Dr. Abraham Flexner himself ran who decided on all these medical school businesses. He was not a doctor himself. He was not a physician. He was not even a scientist.

601
01:08:23.820 --> 01:08:27.580
He was not a medical educator. He owned a prep school in Maryland.

602
01:08:27.580 --> 01:08:29.780
He was a bachelor of arts.

603
01:08:29.780 --> 01:08:36.780
What gave him this great power to decide, et cetera? Well, we'll get to that in a minute. That's a teaser.

604
01:08:36.780 --> 01:09:06.780
Okay, as a result of this also we have situations, for example, where you can be a licensed qualified physician in New York and go to medical school in New York, if you're trying to shift to New Jersey, you can't do it because you have to go through the same process in New Jersey. You can't just automatically shift. Again, it's a monopoly situation. The shift is supply first to the left, trying to keep out competition. There are other processes involved here.

605
01:09:06.780 --> 01:09:12.780
One of the processes, as we'll see later on, of price control, rent control,

606
01:09:12.780 --> 01:09:18.780
if you give the producers power over the market, over the supply,

607
01:09:18.780 --> 01:09:23.780
this means that you have all sorts of, much more room for discrimination than you have before,

608
01:09:23.780 --> 01:09:29.780
because in other words, if you give the building superintendent the power to allocate apartments rather than the price system,

609
01:09:29.780 --> 01:09:33.780
it means that the superintendent is going to allocate according to the race or religion he prefers.

610
01:09:33.780 --> 01:09:38.780
The same thing happened in medical school. You had to create this artificial shortage of spaces in medical school.

611
01:09:38.780 --> 01:09:46.780
The result is you had a much greater increase in discrimination against, for example, Negro, Jewish and female applicants.

612
01:09:46.780 --> 01:09:51.780
So the number of female doctors dropped considerably.

613
01:09:51.780 --> 01:09:56.780
There were much fewer female physicians. I mean, absolute number, not just per thousand people.

614
01:09:56.780 --> 01:10:00.780
Much fewer women physicians in 1940 than there were in 1910.

615
01:10:00.780 --> 01:10:06.540
So you have this crackdown then on the so-called minority groups as a result of this, of giving

616
01:10:06.540 --> 01:10:11.980
a power over the supply of the service to the occupation of the profession itself.

617
01:10:11.980 --> 01:10:17.300
That was they give them the power to ration spaces and you have situations where people

618
01:10:17.300 --> 01:10:21.980
who were, couldn't get into medical school, pretty absurd because a lot of, in other words

619
01:10:21.980 --> 01:10:24.780
people who are intelligent, got good grades, could get into law school but could not get

620
01:10:24.780 --> 01:10:25.780
into medical school.

621
01:10:25.780 --> 01:10:30.780
The amazing thing was that there was a tremendous shortage, an artificially created shortage of supply

622
01:10:30.780 --> 01:10:37.780
and people used to go to Switzerland and try to get an MD there and try desperately to come back here and so forth and so on.

623
01:10:37.780 --> 01:10:42.780
All of this is a result of this artificial restriction.

624
01:10:42.780 --> 01:10:50.780
Another thing about quality is excuses of course the quality of the consumer who needs high quality medical care is being protected.

625
01:10:50.780 --> 01:10:57.780
In every one of these cases, not just of course for physicians, but also for barbers and photographers and every other licensing law,

626
01:10:57.780 --> 01:11:05.780
there's always a so-called grandfather clause, just true in the medical profession too, exempting existing doctors from these requirements.

627
01:11:05.780 --> 01:11:11.780
In other words, when the thing was passed in 1910 that you have to go to such and such a medical school to be a licensed physician,

628
01:11:11.780 --> 01:11:17.780
this did not apply to Joe Blow who might have gotten a phony degree in car washing or something,

629
01:11:17.780 --> 01:11:20.780
is committing surgery on public.

630
01:11:20.780 --> 01:11:24.780
You can continue doing this until the age of 80 without any problem at all.

631
01:11:24.780 --> 01:11:30.780
So the fact that the so-called quality protection of the consumer

632
01:11:30.780 --> 01:11:32.780
never applies to existing people in the profession,

633
01:11:32.780 --> 01:11:34.780
either doctors or photographers or whatever,

634
01:11:34.780 --> 01:11:38.780
seems to point very clearly to the conclusion

635
01:11:38.780 --> 01:11:41.780
that the object of this whole thing is monopoly and restriction

636
01:11:41.780 --> 01:11:43.780
rather than worrying about the consumer.

637
01:11:43.780 --> 01:11:47.780
It seems like the last person to be worried about this in this situation.

638
01:11:51.780 --> 01:11:53.780
Of course, there's no recertification procedure.

639
01:11:53.780 --> 01:11:57.780
The doctor can promptly forget everything he knew about when he went to W

640
01:11:57.780 --> 01:12:01.780
and not read anything for the next 50 years and nobody does anything about him.

641
01:12:01.780 --> 01:12:05.780
It's so-called quality guidance and never somehow applies to him.

642
01:12:06.780 --> 01:12:09.780
There's another aspect of this, which I don't want to get too much into,

643
01:12:09.780 --> 01:12:13.880
The

644
01:12:13.880 --> 01:12:22.080
monopoly element in medical schools and hospitals, the hospital-connected physicians are able

645
01:12:22.080 --> 01:12:26.480
to soak the rich and they are able to charge much higher prices for the same service to

646
01:12:26.480 --> 01:12:28.760
rich patients than they are to poorer patients.

647
01:12:28.760 --> 01:12:30.880
This is done again in the name of humanitarianism.

648
01:12:30.880 --> 01:12:33.840
That's all a bushwhop by humanitarianists.

649
01:12:33.840 --> 01:12:36.640
The point is that there are plenty of free clinics.

650
01:12:36.640 --> 01:12:38.920
There's nothing to do with the question of free clinic.

651
01:12:38.920 --> 01:12:44.720
This is a point where a surgeon, for example, can charge high prices as much for an apodectomy

652
01:12:44.720 --> 01:12:47.920
to a rich person as he does to a poorer person.

653
01:12:47.920 --> 01:12:49.420
A dentist doesn't do this, usually.

654
01:12:49.420 --> 01:12:51.420
Dentists are more or less the same price.

655
01:12:51.420 --> 01:12:56.120
Psychoanalysts don't do that either because dentists and psychoanalysts are not hospital-oriented.

656
01:12:56.120 --> 01:13:00.620
The closer you get to the hospital, the closer you get to the source of monopoly power

657
01:13:00.620 --> 01:13:03.420
and the state licensing of hospitals and medical schools.

658
01:13:03.420 --> 01:13:06.920
And so there have been studies of this showing that those physicians,

659
01:13:06.920 --> 01:13:13.920
There are natural practices which are not hospital-oriented, do not price-discriminate, do not soak the rich,

660
01:13:13.920 --> 01:13:19.920
whereas those that are all hospital-oriented do, particularly surgeons and anesthesiologists.

661
01:13:19.920 --> 01:13:23.920
And if we note, it's not an accident that the surgeons are totally controlled by the AMA, for example.

662
01:13:23.920 --> 01:13:28.920
I don't think there's not one officer in the American Medical Association who's not a surgeon.

663
01:13:28.920 --> 01:13:32.920
It's not an accident because the surgeon is the closest source of monopoly power.

664
01:13:32.920 --> 01:14:02.920
by price discrimination I mean this, usually people cannot price discriminate, for example if Rockefeller loves Wheaties and I'm a Wheaties salesman and I see Rockefeller walking in and I charge him $5,000 for a box, why not, he can afford it, the point is that he can then hire somebody else, he can hire a stooge to come in and buy for the usual $0.35 or he can buy it for, you know,

665
01:14:02.920 --> 01:14:05.920
and the black market and micro-easing market on the street.

666
01:14:05.920 --> 01:14:11.920
So competition will usually eliminate the possibility of soaking the rich on the market.

667
01:14:11.920 --> 01:14:15.920
And in the medical profession, especially the hospital-oriented medical profession,

668
01:14:15.920 --> 01:14:20.920
the various ways such as state licensing of hospitals will prevent this.

669
01:14:20.920 --> 01:14:24.920
In particular, all sorts of ways of...

670
01:14:24.920 --> 01:14:29.920
One area, for example, economists will always say to watch out.

671
01:14:29.920 --> 01:14:33.000
Whenever a profession has a special code of ethics,

672
01:14:33.000 --> 01:14:35.560
usually there's just one code of ethics for people,

673
01:14:35.560 --> 01:14:37.240
golden rule or whatever,

674
01:14:37.240 --> 01:14:41.080
whenever you have a profession that has special ethics, like photographer's ethics,

675
01:14:41.080 --> 01:14:45.360
watch out, because monopoly is at work, fleecing in the public is at work,

676
01:14:45.360 --> 01:14:47.280
the so-called medical ethics are part of this,

677
01:14:47.280 --> 01:14:49.640
the so-called medical ethics, for example,

678
01:14:49.640 --> 01:14:53.160
are somehow un-aesthetic or immoral to advertise.

679
01:14:53.160 --> 01:14:57.160
What this means is un-aesthetic or immoral to compete with your fellow doctors,

680
01:14:57.160 --> 01:15:00.160
take business away from them, cut prices and so forth.

681
01:15:02.160 --> 01:15:04.160
It's not immoral to advertise Blue Cross.

682
01:15:04.160 --> 01:15:08.160
Blue Cross can advertise full-page ads in the Times all over the place and the medical profession loves it.

683
01:15:08.160 --> 01:15:11.160
Why? Because this increases the demand curve for all the doctors.

684
01:15:11.160 --> 01:15:18.160
Whereas, if one physician or group of physicians advertises, this will cut into the man of others and this is nasty and competitive.

685
01:15:18.160 --> 01:15:22.160
You don't want competition that will cut prices and benefit the consumers.

686
01:15:22.160 --> 01:15:32.880
Getting back to the Flexner Report and why Flexner got all this power, you know, he was

687
01:15:32.880 --> 01:15:39.200
not a physician, a medical educator or a scientist, and why he was able to put half the medical

688
01:15:39.200 --> 01:15:42.840
schools in the country out of business, his brother was Dr. Simon Flexner, head of the

689
01:15:42.840 --> 01:15:49.400
Rockefeller Institute of Medical Research, and I say he was sponsored, his research was

690
01:15:49.400 --> 01:15:52.160
responsible at Carnegie and Rockefeller Foundations.

691
01:15:52.160 --> 01:15:57.160
The Rockefeller Institute has certain bias,

692
01:15:58.960 --> 01:16:01.720
technological, scientific, ideological bias

693
01:16:01.720 --> 01:16:04.400
in physical medical therapy.

694
01:16:04.400 --> 01:16:06.640
I don't want to get into the medical therapy area.

695
01:16:06.640 --> 01:16:09.200
I don't want to start defending one therapy against another.

696
01:16:09.200 --> 01:16:14.080
I do want to say that there's a certain innate bias

697
01:16:14.080 --> 01:16:18.400
of the Rockefeller Institute for synthetic drug therapy.

698
01:16:19.400 --> 01:16:49.400
for example, Rockefeller Institute of Medical Research is constantly sponsoring synthetic drugs, new synthetic drugs on the market, okay, fair enough, however, there was in 1910, before the Flexner Report, two competing kinds of medical care, each of which was equally respectable in my head, allopathy, which is now called medicine, and homeopathy, which was a completely different kind of doctrine, which said instead of getting synthetic drugs, you should give teeny doses, very, very teeny doses

699
01:16:49.400 --> 01:16:51.400
Natural Herbs

700
01:17:19.400 --> 01:17:28.400
It's almost impossible to find a homeopathist under the age of 75, because there ain't no medical school for homeopathy.

701
01:17:28.400 --> 01:17:34.400
So if you want to find a homeopathic practitioner, you have to look high and low, and he's often half-dead.

702
01:17:34.400 --> 01:17:47.400
But we are prevented from enjoying the possible benefit of homeopathy by the savage compulsory outlawing of homeopathic medicine.

703
01:17:47.400 --> 01:17:55.400
Also, of course, we've seen the medical profession turn against other competing therapies like acupuncture to try to outlaw that, and so forth.

704
01:17:55.400 --> 01:18:06.400
The punchline here, again, is that the Rockefeller family is heavily invested in synthetic drug products, synthetic drug companies.

705
01:18:06.400 --> 01:18:16.400
There might or might not be a connection there between the fact that the Rockefeller Foundation's sponsor and the Rockefeller Institute sponsors research

706
01:18:16.400 --> 01:18:24.000
research which puts the competing homeopath out of business and then pushes allopathy through

707
01:18:24.000 --> 01:18:25.000
fairly well.

708
01:18:25.000 --> 01:18:30.400
So what I'm saying is that the consumers are not only deprived of the cheap herb specialist,

709
01:18:30.400 --> 01:18:36.640
he's also deprived of competing therapy which may or may not be workable.

710
01:18:36.640 --> 01:18:42.680
Because of the total power given to AMA allopathy, we're totally deprived of an enormous number

711
01:18:42.680 --> 01:18:50.680
There are a lot of competing possibilities which could be there, which might pop up in the free market, which are outlawed out of existence.

712
01:18:50.680 --> 01:18:59.680
The carbyazin has been outlawed, interstate commerce, oxy, therapy for cancer has been outlawed, and so forth and so on.

713
01:18:59.680 --> 01:19:08.680
Even crazy old Boehm-Reich spent his last years in jail because of the outlawing war zone therapy,

714
01:19:08.680 --> 01:19:13.680
which is the Food and Drug Administration accused of being fraudulent.

715
01:19:13.680 --> 01:19:19.680
It might well have been incorrect, but it certainly seems to me the consumer has the right to try it.

716
01:19:19.680 --> 01:19:26.680
Anyway, the poor old Reich was jailed because he insisted on renting his organ boxes out for a therapy.

717
01:19:26.680 --> 01:19:31.680
The FDA said they don't work on it, they're fraudulent, therefore you're hereby sent to prison.

718
01:19:31.680 --> 01:19:49.680
But all of this is methods by which orthodox medicine restricts the supply of profession, increases the demand for it, restricts competition within it, especially in hospital-based areas, and outlaws any sort of competing approaches.

719
01:19:49.680 --> 01:19:58.720
Whereby we see not only how to find the man's influence by government action, we also see

720
01:19:58.720 --> 01:20:02.560
what the problem of monopoly really is, we'll get back to that later on, let's call it monopoly.

721
01:20:02.560 --> 01:20:05.640
Problem of monopoly is always government, it's always government getting in there, restricting

722
01:20:05.640 --> 01:20:08.560
supply and pushing places up.