Saul Levmore: Monopolies as an Introduction to Economics | Big Think

Saul Levmore: Monopolies as an Introduction to Economics
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Levmore brings the future of economics into sharp focus by contrasting the approaches of the emerging global economic powers of India and China. From the basics of pricing, demand, and competition, to global politics and the future of government, Dr. Levmore makes it easy to see economics at work all around us. This may well be the only field in which thinking about the cost of a chocolate chip cookie or how airline ticket pricing works is expected to provide insights into the machinations of the entire world.
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SAUL LEVMORE:
Dr. Saul Levmore is a renowned academic and professor of law. He is a member of the American Academy of Arts and Sciences as well as the past president of the American Law Deans Association. Dr. Levmore's extensive experience in teaching has made him a highly sought-after expert in various facets of the law. His published works range from game theory and insurance to tax law and intellectual property rights. Most recently, Dr. Levmore has studied topics in public choice, Internet anonymity, financial risk regulation, and double jeopardy. He is the author of "Super Strategies for Games and Puzzles and Foundations of Tort Law." and the co-editor of the book "The Offensive Internet: Speech, Privacy, and Reputation." Dr. Levmore is currently the William B. Graham Distinguished Professor of Law at the University of Chicago.
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TRANSCRIPT:
Hi, I’m Saul Levmore and I teach law or really economics and law at the University of Chicago. It’s my good luck to be her to introduce you to the subject of economics. Well, what is economics?
Let’s play a game of free association. I say “economics,” you say whatever comes to mind. Economics-money. Economics-Wall Street, housing bubble, prices, incentives. Ohh, if you said incentives, that’s pretty sophisticated.
I think it’s easy to see why economics is relevant. Economics is everywhere. Economics is why buildings go up; economics is why cookies cost $3.00. Economics is about getting the seat you want on the plane. Economics is, yeah, it’s about making money, but it’s about human behavior in general. Economics is to the real world around you as meteorology is to the weather, it’s interpreting all the phenomena and figuring out if there’s anything we can do about that. How could that not be relevant to every one of us?
That’s a lot of what we’re going to talk about today. Economics is, formally at least, the study of the allocation of scarce resources. You don’t have enough of something, a lot of people want it, who gets it, how do they get it, what do they give for it, how do you get people to make more of the thing. All of that is economics. I’ll say it again; economics is about the allocation of scarce resources.
Economics is also about puzzles. Economics likes to assume, just to make its job easier, that people are rational. You know, what is a rational person? The rational man is the guy who sees that the price of wheat rises; he gets up earlier in the morning and grows more wheat on his farm. Economics is the guy who buys more of something when the price drops. That’s the rational man.
The rational man loves to download stuff from iTunes when iTunes price goes down, but the rational man also creates more music in his garage and sells it when he gets paid more by people who download it from iTunes. One guy wants the price low; one guy wants the price high. They’re using incentives to communicate with one another.
So economics is about exchanges, economics is about prices, therefore it’s about money and it’s about incentives. Once you have those four things down, you’re beginning to put the package together.
I said that economics was about puzzles. Economics is also about puzzles.
And these puzzles are even deep mysteries, have a lot to do with how economics got started in the first place. Kings would be really confused about some things. They would issue new coins, the coins would go out into the realm and the coins would disappear. Where were these coins going?
Peter the Great, I just read the other day, beheaded some 1,000 people for hoarding coins. And he could never figure out why when he issued silver coins, people would hide them or bury them in the fields. Why didn’t they want to use these coins...
Read the full transcript at bigthink.com/videos/everyone-...

[@bigthink]

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[@HigoWapsico]

Big Think this made me not wanna watch any of your videos anymore... Way to serve the 1%. Just watched a bunch of culturally woke social sciences videos and the one economic video, you guys go all the way to the right? To propaganda and lies. First sentence, making "assumption people are rational, to make it easier" you kidding me? Without the assumption, No mathematical models!! All equation produce infinity or space and collapse. And he's fucking arrogant, every time he says out loud what he thinks are the audience's answers, he uses a dumb homer simpson voice Peace out, sociopathic technocrats

[@marcusfelix8774]

a tip: watch movies at flixzone. Been using them for watching lots of of movies during the lockdown.

[@emersonsaint8164]

@Marcus Felix yup, have been watching on flixzone} for months myself :)

[@MrJ1GS4W]

I'm a physics major but because of people like you (and my dad who has a masters in economics) is what made me seek for an economics minor and (maybe someday) seek for more education in the subject. Thank you so much.

[@bluegiant13]

I want more videos like these on finance, investing, and economics!

[@mannymonas]

Quite informative... That is more than I have studied in Econ 101 in the whole semester.

[@loganmathis8964]

might as well become an autodidact lol

[@spacedew]

the first semester is designed to act as a sort of base for the more difficult and complex in the future of your studies, it is easy but what comes after will be more complicated so you need to know everything 100%.

[@jimmytimmy3680]

Than you have learned nothing in class. A 3rd grader can understand these basic economic principles of scarcity, demand, pricing, money and markets.

[@mannymonas]

@@jimmytimmy3680 get a life

[@Paetaor]

Gotta love Bigthink. This video really makes you think about how effective people that can't use the price system, or incentives can provide goods and services. The USSR was notoriously bad at managing production, setting prices and watching their people starve and freeze. Peter Schiff, and other Austrians, predicted the housing bubble well in advance of the crash and explained precisely why it was a bubble. It was mainly due to the Fed but not solely.

[@mrdagag]

with such kind of teachers you really learn!!!! they make the class interesting and you feel like it worth to spend your time on it!!!

[@Rusty_Shackleford137]

Man i wish these were shown in high schools that way students could get a good idea on what they like. I went to a trade school because I didn't understand what courses in 4 year+ colleges were for. But these videos portray them very nicely.

[@dustinharford8454]

I greatly appreciate Levmore's enthusiasm on the topic and his incredible knowledge combined with succinct explanations of complex ideas. It makes me really wish I went to the University of Chicago for my first year in economics. Big Think also had a helpful hand in the listing and animations of what Levmore's talking about. Thanks!

[@whateva1983]

if these videos included a bibliography they would be perfect.

[@bluegiant13]

I would pay money for a pool of videos that explain a course in this way.

[@saeedabdullah1982]

I LIKE YOUR PRESENTATION AND INFORMATION. THANK YOU

[@josephk87171]

Great job at a comprehensive lecture Saul. The last part of the lecture about monopoly is not one I got in university economics (Rather Keynesian approach)

[@mikilofo90]

Wow, this leacture is awsome! Thanks floating university :), simplicity and knowledge spent in here is just wow!

[@CDNScience]

I really enjoy these lecture-length videos. Keep it up!

[@sahilparashar9992]

Prices decide what consumers want and how suppliers/sellers make the product(their approach). Prices define the intensity of the product's demand. High prices can be a signal that the product is more desirable(and rarer, requires more effort)

[@BrianJohn94]

Brilliant Lecture - These videos are invaluable!

[@gilescorey1798]

Thank you for your reply. I'm operating under the assumption that the deal corporations make with the gov, to provide themselves the privilege of indemnity and other benefits and protections from lawsuit, is that the had to show what social good they were providing. That reason was then written into the corps mandate and charter, what social benefit they were offering how they were serving the public. Obviously that is not how it is today, but not long ago this was standard.

[@wegreenall]

at 8:30, it's not that the price will fall to the MVP, (ie, the cost of putting together the inputs, at which point there would be no incentive to produce) but the DMVP, ie, the cost of putting together the inputs discounted by the discount rate.

[@Anorve]

One of the best talks I watch here in youtube

[@alexhaussmann2078]

i did not think that it was that diamonds were rare but that there was a monopoly on them and a created market

[@josephpostma1787]

Alot of them are manmade and they just control the supply.

[@anguswiebe]

Monopolies can be good for consumer can't they? If a business with a great enough economy of scale has a monopoly they can sell goods to consumers incredibly cheaply because no-one else can compete. The reason they wouldn't then raise prices after undercutting everyone else is if there are low barriers to entry; other businesses would just jump in and do it for cheaper. Where monopolies become serious problems is when there is a(n) (extremely) high barrier to entry.

[@Dextrous90]

A very interesting lecture. Thank you.

[@itachisan29]

Excelent lecture series! Keep going.

[@chibicas]

Surprised this doesn't have a million views. Awesome things i'm learning here. Thank you.

[@josephboor7747]

I should point out that there are such things as natural monopolies. Electricity generation is one market that formed monopolies without government intervention. This is largely due to the physics of electricity, but any market where economies of scale are massive will tend to create monopolies.

[@khanhlong89]

Excellent series!

[@AllanYangMusic]

This is awesome. What a great video. This taught me so much today.

[@TheMimeGogo]

God, I love these (almost) hour long lectures

[@gpokriff2]

Interested in Saul's overview of the presidents economic plans.

[@Randomboiiii]

Very informative. Thank you.

[@ArminAbdihodzic]

Thank you, Saul Levmore, you just blew my mind !!!

[@TheFifthGreatApe]

1)How do we infinitely grow (fiat, fractional reserve practice based on debt) in a world of finite resources? Where what is owed is ALWAYS greater then the principle. and to that end... 2)What is the one to one correlation between a unit of currency and the resources we have available? also, 3)Where does technology fit into the equation? Whereas technology produces abundance, efficiency, and sustainability. The paradigm opposite of 'economic' theory of value of scarcity, servicing and turn-over.

[@Jimmy2times90]

Excellent lecture!

[@lenishaalexander6909]

what is the differences between demand and supply??

[@DudeRevolution]

Wow, what a brilliant insight into economics of the modern world. A great hope for our species that we can, and have in fact already started to do better.

[@hansjurgen]

There was a time when parents would teach these things to their children and not everyone had to go to college to learn basic things to understand economics, finance, investments, etc. Sad that we need these videos, but they are very well put together and succinct.

[@degaboyz77]

I would like to thank you for uploading this video; it was really interesting and I would love to see more from this guy. Maybe could do a show where you start up a business from a economists p.o.v. thank you very much -Phillip Jones

[@nextabe1]

29:36 He says Barriers to Entry, the graphic reads,"Barries to Entry"

[@mikkalthered]

Thank you for the Knowledge.

[@Vladd7]

good presentation, thank you!

[@InfernosReaper]

The diamonds example is hilarious because it is a monopoly & that's why they cost so much. It's a non-competitive market, since the only competition De Beers has is blood diamonds.

[@TammyRoseW]

Well, I Thought that was a fantastic Video, taught me alot. Thank you Saul Levmore, William B.

[@Go4Yourz]

Re: the chart @ 22.36 mark. How does marginal cost and marginal revenue factor in to how much output the airline should produce?

[@RusiesKroket]

This video was awesome!! Really useful infromation!

[@johnwerner6043]

Hmmm, I might have to disagree only with the last part of this at 40:40 China has a lot of free market dynamics associated with labor, and a migrant workforce

[@heavenlypatriarchDM]

+John Werner I agree. China is largely capitalistic, and has benefited from their extremely low prices coming from a land that was largely in poverty. Since they have been able to outprice the market on almost anything produced, they have had a huge influx money, thus all the bridges and buildings. As their people begin to demand more, their increased cost of production will lead to economic balancing, slowing the boom.

[@andrepow]

Rolling my eye!

[@arbmoneyful]

Bigthink your doing a good job with these kind of videos, keep it up

[@kyleseptoo1867]

Excellent lecture 👏

[@Neavris]

I saw a mistake at 29:34 - barries instead of barriers.

[@dyne313]

Peter Schiff predicted the housing bubble. It was easy to predict if you were looking at the right information, and knew what you were looking at.

[@ManSand202]

thank you for this video

[@katawatenshu]

Amazing, thanks again bigthink

[@andrewsimpson18]

This is kind of off topic, but Standard Oil was broken up in to two main companies. Those two companies eventually became Exxon and Mobil. As they say, "the rest is history." -__-

[@danielleary9533]

The part about India and China was fascinating. I have to imagine that there are downsides to the Chinese method, though, especially when it comes to corruption, so I'm a bit disappointed that this seems to frame China's system in such a positive light.

[@masterjosch]

i hope there also will be one about teachers and education since it's what i'd like to study later on :)

[@chrismarklowitz1001]

I like to think of economics as a branch of psychology which is that we all act in accordance to what is most pleasurable. And what is least painful. Certain desires are more weighted than others. And we also adhere to beleifs that limit ot expand us to say that investment is a good one or a bad one. We desire rare objects We desire to belong. We desire to be safe, to eat, sex, respect. Which all acount for demand We desire to avoid payment Now, depending on how much money you have payment changes thus payment is different. Depending on what you believe which comes from environment and genetics will bring respect love. Accectance sex and food The demand is different for different environments or cultures. And thus look at the environment which people are in. Look at how much money peopl have to determine actual payment. And you can determine the point in which that demand and price are balanced. However, where it becomes difficult and uncertain is the prefernce to any given desire. Which is determined by deprivation and importance. Which ia rather personal. If you are deprived of love then the desire for love dominated. If you are personally told from your environment as a child that the most important or prevelant desire is to be safe maybe you are consisstently unsafe ad a child then you will spend your life trying to be safe. In general some desires are more important to others as per our nature but more braudly they are more of guidelines than a rigid hierarchy.

[@gilescorey1798]

The primary goal of any corporation is not to make a profit. The entirety of its existence is contingent upon what social good or service it provides to its larger community. Profit may be second on that list, but its not first. An economy exists to serve the masses, not a few lucky corporate executives. If an organization has no socially redeeming qualities there is no reason for it to exist. Therefore, what something is priced at isn't wholly driven by profit alone.

[@Stop4MotionMakr]

Back to the basic, according to the International Baccalaureate Economics curriculum, economics is: The study of satisfying unlimited needs and wants with limited resources. Then it all branch out from there.

[@PhillipBroussard]

Monopolies exist in every town and city. The garbage company that you utilize... The utilities company that you pay... Those are legislated monopolies which are legal. Monopolies like this are actually created by the city governments due to the legislation that they introduce regarding certain utilities like water, gas etc... The laws that are in place to fight certain monopolies are due to anti-competitive measures that are taken on by certain companies.

[@geemongo6217]

fantastic!

[@cowgodgames]

There was a spelling error in the video. "Barries" to entry should have been "Barriers" to entry like he said.

[@stealthswimmer]

totally agree. Some people think that there's no substitute for a human being there...and that's true to some extent, but I don't thin it's necessarily the most important part. It's openly admitted that lecture is the least important part of most college classes. So like you said, I think a human is there to help you clear obstacles and get you past the trouble spots.

[@insenjojo1839]

It pains to see such a brilliantly done, painstakingly put together video about a key essential to existence & growth get a meagre 100K views....while Gangnam style & Despachito gets viewed over twice a billion times.. SHAME! Read That In Golum's Voice

[@holatio4028]

*Despacito

[@MrGrauser1]

Diamonds are not scarce; their supply is artificially controlled. And he says the price of an item is usually how much it costs to produce it, excluding luxury goods. But it seems to me that most items cost much more than it cost to produce it. For example smartphones which cost ~$150 to manufacture but sell for 2x (maybe smartphones count as luxury?). Also, his simplified explanation of the housing market made no mention of the Federal Reserve interest rates. But I liked his view on China.

[@Nitsugalego]

Standard Oil had no initial market power, with only about 4% of the market in 1870. Its output and market share grew as its superior efficiency dramatically lowered its refining costs, and it passed on the efficiency savings in sharply reduced prices for refined oil (from 10 cents in 1874, to 5.9 cents in 1897). It never achieved a monopoly (in 1911, Standard Oil had roughly 150 competitors). Even if it had been a monopoly, S.Oil's efficiency and low prices would be an argument FOR monopolies.

[@sombd133]

Is there a playlist of these interviews, like this and Bill Ackman where its a long introduction to things rather than 1-5 mins clips.

[@sombd133]

Nevermind found it. Its called floating university series or something.

[@216trixie]

Right. I think it comes from the idea that we have to "share" everything and that it's not "fair" if one person has something someone else has. The government has been forcing these monopoly/cartels for some time now.

[@TheCrimson7272]

i would agree with you that some economic theories include political and social aspects to them, but i also think that those theories of economics arent really about economics. the study of economics is almost entirely about the past and looking at what caused what, i think that what you are referring to is the business model of economics and how to make the most profit while staying competitive ect. im not saying some dont learn economics to try and exploit people but most probably dont.

[@storera21]

This is possibly the most educational procrastination I've ever undertaken...

[@spotlightman1234]

This lecture made me hungry :)!

[@studiodream1114]

very nice

[@TheeImmortalPhoenix]

Oh understood. In that sense I agree, but in a larger sense I also feel as a whole consumers tend to be rational. Then again, marketing seems to prove me wrong again and again so I'm open to consideration.

[@danielt63]

No matter how high the finite costs, and no matter how strong the demand, the supply is *infinite*. According to supply and demand, that means the cost should be 0.

[@BlueYearning]

good point

[@danielt63]

The theory of supply and demand predicts that price will be dictated by the supply/demand ratio. As you point out, the opposite is true. In the case of apps (and handbags since he also used them as an example,) supply and demand are dictated by price, not the other way around. IE, the theory is unsound. Price is not a "little messenger" as described in this video, it is the determiner.

[@danielt63]

It would be interesting to get rid of the copyright, trademark and patent laws so that the government wasn't "forcing" these monopoly/cartels. Ah, but these laws aren't being forced on businesses at all.

[@pappulaabo]

I like white chocolate chip cookies more than regular ones. But both are very good. And also the ones with white dough (instead of normal dough)

[@yuanyelu6304]

that is a high compliment of Chinese gorvernment

[@bestmarty]

much better then the econ lecture I should be going to right now

[@LingahbytheSea]

I'm glad you "researched the definition of a monopoly, but, it would behove you to further your "research" by ascertaining their market share , before refuting what you don't know. Who cares if people buy the other 2%, that wasn't the origin of dispute. Your welcome, for today's lesson.

[@hardworker424]

This was great.

[@MrHighmrk]

Maybe as an add on to the class, most def. I have some interest in being a teacher and if I ever do, I'm gonna show a bunch of Big Think and TED talks in my class

[@MrBumbo90]

@Conniptioned I agree

[@Nitsugalego]

14:00 Peter Schiff and Ron Paul saw it coming!

[@scrunner1436]

He completely missed the indicator in section 2 of housing. Housing didn't rise on speculation of fad psychology. It had to do with too easy of credit (which he touched on). The reasoning was not investors though. It was the government mandated it into effect by the legislating Fannie and Freddy. The government pushed the demand higher than what the market could sustain.

[@GreenGearMood]

Sure wish we had laws like that.

[@elliotcentrella]

I love the way he says, "Coo-kee"

[@kght222]

i use thepiratebay, but whenever i have ran into something that i really liked, i bought it, because the quality of the product when bought was higher than the quality of the free analog.

[@dmx952]

Don't they have measures against potential monopolies?

[@thirytreethousandabe]

33:04 time mark

[@riceman12390]

39:54 why would typewriters have been a bad monopoly??

[@ehvlullo]

If you're interested, you can check MIT microeconomic courses on youtube. I'm always somewhat set back by this rational argument. It is a factor but makes everything a bit sterile and distant. The world isn't rational and though it is a great simplification for early educational purposes, it should always be very clear that you're dealing with a model. great lecture anyway! professors make or break a course more than you should wish for.

[@chinaman1023]

Simple, create a new tax, a democracy tax. Politicians from the 2 major parties can only campaign using funds form this tax which will be distributed in a standardized way.

[@ekanem2954]

pretty good!

[@showylee1980]

to the couple of thousands of people who watches these lectures: the world could well be yours one day!

[@Thomaster9999]

Agreed, so glad I've downloaded google chrome a while ago.

[@ItalianStallion1415]

Most of my teachers seem like they learn their stuff from videos as well, because a few times my teacher had showed us a video I had already seen at home. I feel bad that my parents pay for my high school so I can relearn stuff I can simply Google.

[@llamaczar]

And yet by the time litigation ended and stand oil was broken up it only had about 25% of the market share.

[@javiersanchez5030]

Yay another one!

[@gabicelaya]

Typo at 29:38