Class #42 "The Last Class of the Semester" (12/12/11)

What is Interest? Just another price set by supply and demand for credit
- Emerges from desire to have purchasing power at a time when you don't have it on your own.
-We are willing to pay a price for obtaining unearned resources. 


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Profits are what is leftover.
Two types of profits. 
1) Accounting profits: Revenue - costs(Explicit)
2) Economic Profit: Revenue - Implicit costs(Opportunity Cost: forgone rent, wage, interest, ect.)  - Explicit Costs


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-Profits and Losses are signals.
-Profits are a signal that you are making good decisions, Losses are signals that you made bad decisions. 
 "Capitalism makes you pay for sucking" - Rizzo


Why losses need to be allowed:
-Losses are destroyed/wasted resources. So when a company is allowed to operate in a loss (i.e. subsidies) resources are being wasted.
-By taking away the potential of a loss, you risk less, so investors back by government take unsafe risks knowing their are big potential rewards and little potential loss. 
-When losses are allowed there are no feedback systems. Losses mean your are doing a bad job, but government entities (USPS, AMtrak) operate at losses, and have have no reason to improve.

Rizzo

-Daniel Gaona