13_DavidHume

# 13_DavidHume - wage is constant – A few years ago it to...

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The Price of Key Items in the USA Readings: Zagorsky Chapter 6 “Using Prices”

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David Hume (1711-1776) His mother thought he was smart so sent him along too. He was 12. Finished in 3 years. Moved to France and wrote “A Treatise of Human Nature,” his most famous book. Hume’s writings were very skeptical and anti-religious He tried a number of times to become a professor but was turned down because of his religious views. Born in Edinburgh. Father died when he was 2. His brother went to Edinburgh Univ. in 1723.
Hume’s Economic Ideas I Two types of variables in economy. Nominal variables: items measured in money units. Example: Price of large burger was \$1.50 a few years ago. Today \$3.00. Minimum wage was \$3.00 a few years ago. Today about \$6.00 per hour.

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Hume’s Economic Ideas II Two types of variables in economy. Real variables : items measured in physical units. Example: Ratio of burger price to minimum

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Unformatted text preview: wage is constant. – A few years ago it to \$1.50 / \$3.00 ½ hour of work to earn a burger. Today it takes \$3.00 / \$6.00 ½ hour of work to earn a burger. Real Vs. Nominal • Changes in prices impact nominal variables but not real variables. – It takes 15 person hours to paint a room. The amount of time does not change if prices are high or low. – If it takes 5 people 10 hours to assemble a computer at \$10 an hour (\$500 labor) to build one computer. – If prices are twice as high then it still takes 5 people 10 hours to assemble a computer. Since all prices are doubled it costs \$20 an hour (\$1,000 labor) to build one computer. Hume’s Classical Dichotomy • Classical Dichotomy : Economic variables can be theoretically separated into two groups, real and nominal variables. • Money impacts nominal variables. • Money does not impact real....
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13_DavidHume - wage is constant – A few years ago it to...

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