Profit: the difference between your total revenues and total cost--essentially, whatever is leftover
Interest: a price that comes from supply and demand; it emerges from the market of loanable funds
- A positive price we're willing to pay to obtain an unearned good now
In order to ensure profits, wages and rents are contracts that eliminate uncertainty. Economic profits are different than accounting profits because the former takes implicit and explicit costs into consideration. Economic profits are how much richer you are now as opposed to doing the next best things. Profits can be a potential cost for entrepreneurial activity. The necessary condition for profits is that we live in a world of uncertainty. Sometimes you don't know how to cut yourself in on the profits.
Losses are essentially making people pay for sucking at whatever it is that they're doing. Eliminating losses costs everyone because:
- Allocation of resources would be all wrong and destructive
- Eliminates feedback loops
- Insulating people from losses causes them to take more risks.