Economics in One Lesson

In Chapter 23, capital goods refers to the money businesses spend to produce goods and services. They can earn this money through sales profit, but more relevant to the context provided in this book, they can gain this money through shareholders’ investment. People who put their savings in banks will help banks reinvest part of that amount into businesses, which increases capital goods produced.

In Chapter 23, consumer goods refers to products or services purchased by everyday people. The more production there is, the greater the supply, and, provided demand does not change, the lower the price of goods and services will fall.

Similarly to the equilibrium wage, the equilibrium price is achieved by equalizing supply and demand. Hazlitt believes that asking for a higher price on a product will cause demand to fall, which will in turn force the firm to lay off workers since it is making less profit by making fewer sales. Workers who are laid off cannot consume, which will in turn affect other industries, causing a net loss to economic development. Thus, rather than raising prices above market value or reducing them below, Hazlitt argues that the best long-term economic decision is to set a price that reaches an equilibrium between supply and demand, allowing for the highest volume of production and largest volume of sales.