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Mises AcademyAustrian Econ I:
Praxeology Through Price Theory
Robert P. MurphySpring 2011
Lecture 2May 4
Austrian Econ I1. The Marginal
RevolutionII. The Law of ReturnsIII. Specificity and ConvertibilityIV. Labor Pains
V. Crusoe Economics VI. Costs VII. Praxeology & Econ
I. The Marginal Revolution
See mises.org/journals/jls/20_1/20_1_3.pdf.
II. The Law of Returns
Factor Yb Units
Factor Xa Units
Total Productp Units
Average Unit
Productp/a
Marginal ProductDelta p / delta a
33333333
01234567
04
101830404549
0456
7.58
7.57
…468
121054
III. Specificity and Convertibility
●General law: A change in the value of the product causes a greater change in the value of the (relatively) specific factors than in the value of the (relatively) nonspecific factors. (p. 40)
IV. Labor Pains
●“Leisure as consumer good” is first reliance on empiricism (not just action axiom), per fn 27.
●“Leisure is consumer good” = disutility of labor
V. “Crusoe Economics”
A. Saving & Investment
B. Capital
●“He who possesses capital is that much further advanced in time on the road to the desired consumers’ good.” (p. 52)
● Importance of maintenance (gross investment)
●Possibility of “capital consumption”
VI. Costs
Definition: The cost of an action is the subjective value (or utility) placed on the next-best alternative that can NOT be achieved because of the action. (p. 71)
� Costs are never “realized” but are always anticipated.
VII. Praxeology & Economics
Praxeology: formal study of the fact that people use means to achieve ends (without commenting on the ends themselves).
Economics: Studies action of isolated individual and of interpersonal exchange (aka “catallactics”). (p. 74)
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