Class Summary #41 for 12/9/11

Today we learned about Profits, Losses and Entrepreneurs. Rizzo covered a number of interesting topics relating to entrepreneurship and what we as a society consider unethical and ethical.

Rizzo started class by pointing out that we don't celebrate accumulation of wealth but we do celebrate when a person disperses wealth. This brings up the question: Are we better off when Bill Gates produces for Microsoft and makes more money then when he gives money away? The answer could be yes, because if he is making money, it means he is producing effectively as an entrepreneur.

Then we talked about making money at the expense of someone's misfortune. As Rizzo explained, this could be: clothing companies making money off my nakedness, and builders making money off my homelessness. If it is wrong to take advantage of money opportunities at someone's misfortune, then it is also wrong to do the above mentioned things.

The key to consider is how these companies take advantage of our misfortunes. Doctors, for example, do make money off our sicknesses, but how do they do it? They do it by helping us, not by making us sick. Therefore, how is this immoral? They help us fix our problems, what is wrong about that?

You have to look at it like this: money is the motivation for people to do work. For a doctor, it motivates them to do their best to save us. Without the incentive of money, no one would be motivated to work.

Simply put, it is moral and fair to charge people for their misfortunes because if we don't, then their well-being will come at our expense. If I am a doctor and don't get paid for doing work and save someone for free, then I am helping someone but not getting any benefit for my labor. That, if anything, is not moral.

Rizzo also defined the meaning of entrepreneur as a person whose job it is to find what we as a society value/want and create that thing.

Then we learned about Factors of Production, which are:

1. Land
2. Labor
3. Capital

We also learned about profitability. 

The mathematical equation for profitability is Rental rate + appreciation rate - interest cost

Rental Rate = Annual rent / price of good

Appreciation rate = change in asset price / price

Interest cost is whatever the interest is.

If the answer in the profitability equation turns out positive, it means we are better off/richer by buying something as opposed to renting it. If it is negative, the opposite holds true.

This equation can help us determine whether or not it makes sense to buy or lease a car, for example. The example Rizzo gave us in class surrounded whether or not we should buy or lease a car. The profitability turned out to be 2.5%, so this in turn told us we'd be better off buying the car than leasing it.