This document summarizes the key topics covered in Lecture 2 of Robert P. Murphy's Austrian Econ I course from Spring 2011. The lecture covers: I) The Marginal Revolution, II) The Law of Returns, and III) Specificity and Convertibility. It also briefly discusses IV) Labor Pains, V) "Crusoe Economics" including saving, investment and the importance of capital maintenance, and VI) the Austrian definition of costs as subjective opportunity costs. Finally, it distinguishes VII) Praxeology as the formal study of purposive human action and Economics as the study of both isolated and interpersonal exchange.

1. Mises Academy
Austrian Econ I:
Praxeology Through Price Theory
Robert P. Murphy
Spring 2011
Lecture 2
May 4

2. Austrian Econ I
1.The Marginal
Revolution
II. The Law of Returns
III. Specificity and
Convertibility
IV. Labor Pains
V. Crusoe Economics
VI. Costs
VII. Praxeology & Econ

3. I. The Marginal Revolution
See mises.org/journals/jls/20_1/20_1_3.pdf.

4. II. The Law of Returns
Factor Y
b Units
Factor X
a Units
Total
Product
p Units
Average
Unit
Product
p/a
Marginal
Product
Delta p /
delta a
3
3
3
3
3
3
3
3
0
1
2
3
4
5
6
7
0
4
10
18
30
40
45
49
0
4
5
6
7.5
8
7.5
7
…
4
6
8
12
10
5
4

5. III. Specificity and Convertibility
●General law: A change in the
value of the product causes a
greater change in the value of
the (relatively) specific factors
than in the value of the
(relatively) nonspecific factors.
(p. 40)

6. IV. Labor Pains
●“Leisure as consumer good” is
first reliance on empiricism (not
just action axiom), per fn 27.
●“Leisure is consumer good” =
disutility of labor

7. V. “Crusoe Economics”

8. A. Saving & Investment

9. B. Capital
●“He who possesses capital is that much
further advanced in time on the road to
the desired consumers’ good.” (p. 52)
●Importance of maintenance (gross
investment)
●Possibility of “capital consumption”

10. VI. Costs
Definition: The cost of an action is the
subjective value (or utility) placed on the
next-best alternative that can NOT be
achieved because of the action. (p. 71)
Costs are never “realized” but are
always anticipated.

11. VII. Praxeology & Economics
Praxeology: formal study of the fact that
people use means to achieve ends
(without commenting on the ends
themselves).
Economics: Studies action of isolated
individual and of interpersonal
exchange (aka “catallactics”). (p. 74)