Oct 4, 2006

OUTLINE

I. Competition
  C. Equilibrium and price
  D. Profit and loss as economic signal

II. The impact of supply and demand on labor in early America
  A. Demand: "Land cheap, labor dear"
  B. Indentured servitude vs slavery

III. Role of government in a market economy
  A. Supply money
  B. Improve transportation
  C. Prevent fraud
  D. Resolve conflicts (courts)
  E. Define property rights
  F. Provide environment that encourages exchange, innovation

IV. Ongoing tension between govt. regulation and free trade

LECTURE NOTES

Boeing (a company) want to build some new planes, and they posted the list of all the supplies they needed to build a plane on the internet. Using this list, companies (boeing's suppliers) can bid to fill Boeing's orders. They called it a reverse auction. They bid until the price arrives at an equilibrium. This brought the price way down because more companies were able to bid.

Example: (of supply and demand)
Lets do an auction in our classroom. I am going to auction off 'krispy cream donuts'.
Start the bidding at $5... then to $25 dollars (still people standing up)

One buyer, one seller

Labor as an economic problem
-in north america, labor was in short supply
-so they came up with "Indentured servitude"
-people brought african slaves and sold them into the americas

Indentured servitude
-this is where people can't afford to come to america, so a usa business/farm pays there way to cross the atlantic ocean, but they work for the farm/business for 7 years or so, but then they go free, while working they are called an indentured servant

16th century = 1500s
17th century = 1600s
18th century = 1700s
19th century = 1800s

1600s In Britain, the 'enclosure' movement started in the 16th century
-peasants lived on a lord's land in the feudal system
-peasants give the lord their crops
-lord's decided to push peasants off the land, and build fences for sheep
-peasants went to the city looking for jobs (the wandering poor)
-they also turned to crime, because they couldn't get jobs
-'dear' -expensive

Virginia in 17th century (1600s)
-they had a surplus of land (indians died due to diseases)
-they had a scarcity of people to labor
-crop- they started growing tobacco a real cash crop

Problem: Cost of labor
-Slave or indentured Servant
-Slaves cost more than indentured Servants

Virginia founded in 1607
-from 1607-1610, 60% of the people (colonists) died called the "Starving Time"
-65%-80% mortality (early death) before 1624
-Jamestown, Virginia was built on a swamp (easy to get diseases and die)
-so many people died, so it was bad place to build a settlement
-before 1650, 40% of indentured servants died before the end of their term (often 7 years)

It became cheaper in the 1600s to have indentured servants. So why in the 1700s did there get to be so many slaves.

by the 1700s (near the time of the american founding),
supply of indentured servants became scarce because:
-1666 london fire killed a lot of londoners
-black plague killed many in europe
-people heard that indentured servants were dying

by the 1700s (near the time of the american founding),
-mortality greatly improved (people stopped dying early soo much)
-wealthy people took all of the good and safe land
-so indentured servants less likely to want to come to the 'new world'
-supply of indentured servants less in the 1700s

Williamsburg became new capital of virginia
-people died less, they drank cider (water less polluted)
-water polluted: because they'd throw their waste in the ground, then dig a well and drink polluted water

now by 1700s a slave is a better investment,
-mortality improved (slaves don't die as soon)
1662: Virginia Law says child is a slave if the mother is slave
...(and other laws, see slides)
1680: 50,000 whites 3,000 slaves
1760: 180,000 whites 120,000 slaves

market economies have less government intervention, but they are still needed:

Role of a government in a market economy
-to supply money (barter system is bad)
-transportation, reliable roads, trains, plane systems etc.
[example: a family in kenya
road quality in kenya is bad, just bumping everywhere, it was painful to drive
bad roads discourage business]
-a good legal system (rule of law):
--prevent fraud
--resolve conflicts (court system)
--define property rights
--provide an environment that encourages exchange, innovation, etc.

also, note USA has copyright protection for musicians, filmmakers

MEDIA CLIP: (india)
-2 systems, govt regulation is limited vs. excessive
-it takes a lot of paperwork in india to build factories
-Indians do well everywhere except india

Profit and loss as economic signals
-when you have a loss it sends a signal to the factories to decrease production
-when you have a profit it sends a signal to the factories to increase production

MEDIA CLIP: the baby
-baby cries loud to send a signal (but only when it sees the parent)
-baby cries loud to receive attention