Economics Questions

Re: Ordinal Preference (MES)

Fool on the Hill — Sat, 28 Jul 2012 16:26:37 GMT

I was just making the point. It wasn't meant as a reply to anyone.

Re: Ordinal Preference (MES)

Aristippus — Fri, 27 Jul 2012 06:20:46 GMT

My point was merely that it was not necessarily true that one gains by specializing in a particular product.

Who claimed that one always and necessarily gains by specialising in a particular product?

Re: Ordinal Preference (MES)

Fool on the Hill — Fri, 27 Jul 2012 00:08:53 GMT

What do you mean by at play here? And those even the things 'at play'. No one has ever simply 'demanded a commodity' or supplied one, meaning no one walks up to the counter and demands the product. Demand is shorthand for 'commodity demanded in exchange for money'. The same is true for supply. And naturally the quantity of commodity is demanded in exchange for a quantity of money. It seems that again you're using and pontificating off of terms you don't understand.

Exactly. There needs to be a price to make sense of the quantity demanded. I thought Aristippus was saying something else before, but now I'm not sure that we're really in disagreement.

Re: Ordinal Preference (MES)

Fool on the Hill — Fri, 27 Jul 2012 00:00:52 GMT

Aristippus: Haha, it's an interesting discussion nevertheless.

I'm glad you think so.

But that is only necessarily the case in your contrived scenario. What if you and your competitor doubled their productivity of y, while at the same time the producers of x, also in competition with eachother, doubled their productivity in producing x (while my productivity in producing x remains the same)? The goods still trade at 1:1 but now by trading y for x I can gain double the amount of x than I could if I made it myself!

You're right. It's not true in all cases. My point was merely that it was not necessarily true that one gains by specializing in a particular product. I only had to give one example to prove this point (just as you had to only give one to prove that mine wasn't necessarily true). Now the tricky part is looking at the real world and seeing how each scenario fits.

(However, I do maintain--unless I overlooked something-- that improving one's productivity of x [as long as y doesn't decrease] will decrease one's opportunity cost necessarily.)

How does this even address my initial point about consumer demand? Goods are produced for a specific distribution. The price at which they can be sold, therefore, is extremely important in directing production.

Maybe I misunderstood. Certainly the price at which they can be sold is important for directing production. I have been trying to explain how that price is determined.

Re: Ordinal Preference (MES)

bitbutter — Thu, 26 Jul 2012 11:03:11 GMT

It's like saying the best steak I ever had was much better than the best hotdog I've ever had. Quantities have no effect on that ordinal ranking.

Not so. Quantities are certainly involved since you're comparing one particular steak with one particular hotdog. These are concrete units, so it's not a comparison of burger in general with hotdog in general (i dropped the pluralisation to make the point clearer).

Re: Ordinal Preference (MES)

Jargon — Thu, 26 Jul 2012 02:54:56 GMT

Fool on the Hill:

There are three things at play here: the quantity of a commodity produced, the quantity of the commodity demanded, and the price of the commodity. If I were to tell you that a commodity was supplied in the quantity of 100 and demanded in the quantity of 100, what could you tell me about its price? Absolutely nothing. The price could be anything. Therefore, the price doesn't reflect the quantity supplied or the quantity demanded.

What do you mean by at play here? And those even the things 'at play'. No one has ever simply 'demanded a commodity' or supplied one, meaning no one walks up to the counter and demands the product. Demand is shorthand for 'commodity demanded in exchange for money'. The same is true for supply. And naturally the quantity of commodity is demanded in exchange for a quantity of money. It seems that again you're using and pontificating off of terms you don't understand.

This is a good article: Marginal Pairs

Re: Ordinal Preference (MES)

Aristippus — Thu, 26 Jul 2012 02:48:06 GMT

Aristippus, he has no idea what he's talking about.

Haha, it's an interesting discussion nevertheless.

Let me put it in a different way. I am determined to get x. There are two ways I can get it. Either I can produce it myself, or I can produce y and trade it for x. Therefore, the opportunity cost for producing x is the production of y, and the opportunity cost of producing y is the production of x. Let's say at the start 1x exchanges for 1y, and that I prefer to produce y. Now suppose that my productivity increases so that I can produce 1y in half the time it took previously. But my competitor also doubles his productivity, so now I have to trade 2y for 1x--requiring the same amount of labor as before. Thus, though my productivity has increased, it has not reduced my opportunity cost. On the other hand, if my productivity of x had increased, then my opportunity cost would have necessarily decreased quite regardless of what my competitors did.

But that is only necessarily the case in your contrived scenario. What if you and your competitor doubled their productivity of y, while at the same time the producers of x, also in competition with eachother, doubled their productivity in producing x (while my productivity in producing x remains the same)? The goods still trade at 1:1 but now by trading y for x I can gain double the amount of x than I could if I made it myself!

Therefore, the price doesn't reflect the quantity supplied or the quantity demanded.

How does this even address my initial point about consumer demand? Goods are produced for a specific distribution. The price at which they can be sold, therefore, is extremely important in directing production.

Re: Ordinal Preference (MES)

Anenome — Thu, 26 Jul 2012 02:35:04 GMT

bitbutter:
They noticed that the person is expressing his value scale for entire classes of goods, he's not considering concrete quantities/units. So on these grounds Rothbard would likely say that the claim is meaningless anyway, since 'steak in general' cannot legitimately be ranked in comparison to 'burgers in general'.

Of course steak in general can be legitimately ranked in comparison to burgers in general when it comes to ordinal preference. Why on earth wouldn't that be the case? It's like saying the best steak I ever had was much better than the best hotdog I've ever had. Quantities have no effect on that ordinal ranking.

Re: Ordinal Preference (MES)

Fool on the Hill — Thu, 26 Jul 2012 02:18:49 GMT

Clarify? Point me to where you discussed this?

Here:

Let's return to where A can only chop 1 stack of wood per hour and B can do 4. And let's introduce C, who can also chop 4 stacks per hour and catch 1 fish per hour. In this case, the competition between B and C forces the price down to 4 stack to 1 fish. Now A and C work 2 hours for every hour A works for them.

[...]

This example also shows that simultaneous increases in productivity among competitors of a certain good do not increase profits. Their productivity must also increase in regards to (other) consumer goods. This seems to indicate that specialization is not the recipe for wealth after all. Though it might have seemed for B and C that sticking to wood cutting would be most profitable, improving their skill at fishing turned out to be the better strategy. This might have meant that they took losses temporarily as they practiced and presumably restricted their purchases from A.

Let me put it in a different way. I am determined to get x. There are two ways I can get it. Either I can produce it myself, or I can produce y and trade it for x. Therefore, the opportunity cost for producing x is the production of y, and the opportunity cost of producing y is the production of x. Let's say at the start 1x exchanges for 1y, and that I prefer to produce y. Now suppose that my productivity increases so that I can produce 1y in half the time it took previously. But my competitor also doubles his productivity, so now I have to trade 2y for 1x--requiring the same amount of labor as before. Thus, though my productivity has increased, it has not reduced my opportunity cost. On the other hand, if my productivity of x had increased, then my opportunity cost would have necessarily decreased quite regardless of what my competitors did.

What??

There are three things at play here: the quantity of a commodity produced, the quantity of the commodity demanded, and the price of the commodity. If I were to tell you that a commodity was supplied in the quantity of 100 and demanded in the quantity of 100, what could you tell me about its price? Absolutely nothing. The price could be anything. Therefore, the price doesn't reflect the quantity supplied or the quantity demanded.

Re: Ordinal Preference (MES)

Jargon — Thu, 26 Jul 2012 02:02:29 GMT

Aristippus, he has no idea what he's talking about.

Re: Ordinal Preference (MES)

Aristippus — Thu, 26 Jul 2012 01:01:25 GMT

Therefore, the only basis for his choice is in the difference of the two production processes themselves.

Exactly - by which I mean most productive for his ends (with no necessary relation to physical production) - and by engaging in one her forgoes engaging in the other.

my point is that this does not guarantee that the opportunity cost that he incurs is lessened by an increase in his productivity.

Clarify? Point me to where you discussed this?

Not when they're in equilibrium.

What??

Re: Ordinal Preference (MES)

Fool on the Hill — Thu, 26 Jul 2012 00:54:02 GMT

Now you seemed to be saying that the option he chose depended on the disutility of the two options, but really it is a matter of overall opportunity cost. This is because by producing the good himself, he foregoes producing a good for trade. The point was that, through interpersonal exchange per the law of association, by engaging in his most productive activity he gains the most - and that by engaging in any other activity, he suffers an opportunity cost. Of course, his 'most productive activity' cannot necessarily be known without considering the end of trade - consumer demand.

But the good that he foregoes producing for trade is the good he would trade for the product he produces himself. The results of the two choices have identical ends. Therefore, the only basis for his choice is in the difference of the two production processes themselves.

While it might be true that he gains the most by engaging in his most productive activity for the moment, my point is that this does not guarantee that the opportunity cost that he incurs is lessened by an increase in his productivity.

Come again? Price reflects supply and demand.

Not when they're in equilibrium.

Re: Ordinal Preference (MES)

Aristippus — Thu, 26 Jul 2012 00:09:01 GMT

He only incurs an opportunity cost in producing the product.

Weren't you talking about production (more specifically, autarkic production vs. production for interpersonal exchange)? In order to trade he must have produced something with which to trade. Let's say that in order to obtain the good he wants to trade for, he could either make it himself or trade for it. Now you seemed to be saying that the option he chose depended on the disutility of the two options, but really it is a matter of overall opportunity cost. This is because by producing the good himself, he foregoes producing a good for trade. The point was that, through interpersonal exchange per the law of association, by engaging in his most productive activity he gains the most - and that by engaging in any other activity, he suffers an opportunity cost. Of course, his 'most productive activity' cannot necessarily be known without considering the end of trade - consumer demand.

I am just giving a theory of price and not of supply and demand

Come again? Price reflects supply and demand.

Re: Ordinal Preference (MES)

Fool on the Hill — Wed, 25 Jul 2012 23:38:39 GMT

Opportunity cost in general. I can engage in activity A which brings about a psychic profit, but I could have been engaging in activity B which might have brought about an even greater psychic profit. This has no necessary relation to disutility, which is just the part of action which in itself does not bring about psychic profit, and therefore is necessarily engaged in purely with a view to a further end.

Ah, I see. I have not been using disutility in that sense. I am using it more along the lines of what you mean by opportunity cost. But the more I think of it, opportunity cost is really a misnomer. Cost normally refers to the physical item one gives up. But when a producer gives up his product in a trade, he doesn't really incur an opportunity cost since generally he wouldn't have ever spent any time using the product anyway. He only incurs an opportunity cost in producing the product.

My point is that this is ultimately just one aspect of opportunity cost. Even in your own framework why would you say that it's just disutility and not opportunity costs overall? This, however, would still not address the question of consumer demand: what should be produced and in what quantities.

Right, I am just giving a theory of price and not of supply and demand. We need to know the price of a product before we can know how much to produce or buy.

Re: Ordinal Preference (MES)

Aristippus — Wed, 25 Jul 2012 02:01:13 GMT

How can there be costs other than disutility?

Opportunity cost in general. I can engage in activity A which brings about a psychic profit, but I could have been engaging in activity B which might have brought about an even greater psychic profit. This has no necessary relation to disutility, which is just the part of action which in itself does not bring about psychic profit, and therefore is necessarily engaged in purely with a view to a further end.

Rather it is determined by the disutility of production that it saves the buyer from (along with corresponding evaluations from the seller)

My point is that this is ultimately just one aspect of opportunity cost. Even in your own framework why would you say that it's just disutility and not opportunity costs overall? This, however, would still not address the question of consumer demand: what should be produced and in what quantities.