Mises AcademyAustrian Econ I:

Praxeology Through Price TheoryRobert P. Murphy

Spring 2011Lecture 3May 11

1st half Chapter 21. Types of Interpersonal

ActionA. ViolenceB. Voluntary ExchangeII. Exchange Based on MUIII. Exchange Changes ValuationIV. Private Property

V. Specialization VI. More Specialization VII. Equilibrium Price

I. Types of Action

A. Violence

B. Voluntary Exchange

Alice Billy1st: (Yam) 1st:

(Xylophone)2nd: Xylophone 2nd: Yam

Reverse valuations�gain from trade.

II. Exchange More Units Based on MU

(Dots are cows, crosses are horses.)

III. Exchange Changes Valuation

With possibility of exchange, goods are ranked not merely according to to their direct use-value but also their exchange-value, i.e. the use-value of the goods for which they can be exchanged.

Example: In modern society, even a non-smoker might value a carton of cigarettes more highly than an apple.

IV. Exchange Requires Property

V. Exchange and Specialization

Law of Comparative Advantage: Both parties can benefit if they each specialize in producing those goods in which they have the relative or comparative advantage, and then trading the surplus. This is true even if one party is more productive in all goods.

VI. Specialization

VII. Equilibrium Price Determination

A. No Trade Possible

B. Trade Possible at Various Prices

C. More People Narrow Price Range

D. Max/Min Prices of Buyers/Sellers

E. Supply & Demand Schedules