Price Perspective

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Price Perspective

Welcome to lecture three in our course, Introduction to Superabundance: The New Economics of Knowledge, Learning, and Time. In this lecture, we will focus on how to analyze economic data using different perspectives on prices.

Key Concepts Covered

  1. Quantities vs. Prices
  2. Money Prices vs. Time Prices
  3. Change in Time Prices Over Time

Quantities vs. Prices

Many economic analyses rely on counting quantities, but this approach has significant limitations:

  1. Uncertainty in Total Quantities:
  • We do not know the exact amount of resources available (e.g., oil reserves).
  • The Earth is vast, and exploration has only scratched the surface.
  1. Quality Variation:
  • Not all resources are of the same quality (e.g., potable water vs. seawater).
  1. Cost of Discovery:
  • Exploration and extraction require investment.
  1. Unknown Locations:
  • Large portions of Earth, like the ocean floor, remain unexplored.
  1. Substitution Effect:
  • New discoveries can replace existing resources (e.g., copper replaced by fiber optics).
  1. Recycling:
  • Many materials, such as aluminum, can be recycled multiple times.

Key Insight: Prices, rather than quantities, provide better information about relative scarcity and demand.

Money Prices vs. Time Prices

While money prices are commonly used, they have limitations because:

  • Money can fluctuate in value due to inflation.
  • Time is a universal measure and provides a more consistent metric.

Formula for Time Prices:
[ \text{Time Price} = \frac{\text{Money Price}}{\text{Hourly Income}} ]

Example:
If a pizza costs $20 and you earn $20 per hour, the time price is 1 hour. If your hourly income increases to $40 while the pizza remains $20, the time price drops to 0.5 hours, making the pizza more affordable.

Advantages of Time Prices:

  1. More Informative: Compares affordability over time.
  2. Universal Comparison: Works across different currencies and time periods.
  3. Stability: Time cannot be manipulated like money.

Change in Time Prices Over Time

Tracking the change in time prices over time reveals the impact of innovation and economic progress.

Key Equations:

  1. Percentage Change in Time Prices:
    [ \left( \frac{\text{New Time Price}}{\text{Old Time Price}} \right) – 1 ]
  2. Personal Resource Abundance Multiplier:
    [ \frac{\text{Old Time Price}}{\text{New Time Price}} ]

Example Calculation:
If bananas cost 60 cents per pound today and you earn $18/hour (30 cents per minute), the time price is 2 minutes. Ten years ago, bananas cost 50 cents per pound, but income was $10/hour (16.7 cents per minute), making the time price 3 minutes.

  • Time price decreased by 33%.
  • Personal resource abundance increased by 50%.

Implications:

  • Abundance is Increasing: As time prices decrease, resource availability increases.
  • Compounding Effect: Over long periods, small annual decreases result in exponential increases in abundance.

Population Resource Abundance

To measure global abundance:

[ \text{Population Resource Abundance} = \text{Personal Abundance} \times \text{Population Size} ]

Example:
In 1980, one person could afford one sandwich. By 2022, the time price dropped by 75%, allowing one person to afford four sandwiches. If the population doubled, total abundance increased by 700%.

Elasticity of Resource Abundance

Elasticity measures the relationship between changes in population and abundance:

  1. Time Price Elasticity of Population:
    [ \frac{\%\text{Change in Time Price}}{\%\text{Change in Population}} ]
  2. Personal Abundance Elasticity:
    [ \frac{\%\text{Change in Personal Abundance}}{\%\text{Change in Population}} ]
  3. Population Abundance Elasticity:
    [ \frac{\%\text{Change in Population Abundance}}{\%\text{Change in Population}} ]

Insight:

  • As population grows, abundance can increase even faster due to innovation and knowledge discovery.

Summary

  1. Quantities provide limited insights; prices offer better economic indicators.
  2. Time prices are a superior metric over money prices due to their stability and universal applicability.
  3. Measuring time prices over time allows us to track economic progress and the impact of innovation.
  4. Resource abundance grows exponentially due to human ingenuity and knowledge sharing.

Thank you for participating in this lecture. Let’s continue to embrace an abundance mindset by focusing on knowledge creation and economic innovation.

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