Chap 2 Flashcards
How are the gains to society from production maximized?
If we leave prices free to adjust and leave consumers and producers free to transact
Four ways to spend your money
- you on yourself
- you on someone else
- someone else on you
- someone else on someone else
If you spend your money on yourself you…
economize and seek the highest value
If you spend your money on someone else…
you don’t economize but seek the highest value
If someone else spends their money on themselves
they don’t economize and don’t seek the highest value
If someone else spends money on you
they economize but don’t seek the highest value
Free market prices function to: (4)
Ration goods to consumers who most want them; Give incentives to producers to satisfy consumers; Give incentives to conserve scarce resources; Transmit information throughout the economy
What is the Calculation Problem?
The state cannot possess all the information needed to operate as efficiently as individuals do in markets
What is the major advantage of the state?
Force
Two examples of state controlled markets are:
North Korea and E/W Germany
What is Hayek’s view on economic planning?
it is not whether to plan, but who does the planning
What is spontaneous order?
individuals organize and interact efficiently if left freedom
What must the state know to manage the economy?
How to produce (every job in the market), the value of what people want, best way to adjust if something changes
What is the status quo minus fallacy?
conjecture that each regulation fits a hole in reality and without that regulation the hole would be empty. (the regulation is doing something and if we take it away the behavior would escalate)
Why is the status quo minus fallacy not true?
people adjust to compensate for changes.
Advantages of individual markets over state controlled markets: (5)
- freedom is agreeable to most people
- markets utilize the ingenuity of millions of minds
- there are millions of small market experiments, each with low risks
- there is competition to serve others
- incentives to use resources efficiently
What is the public choice school?
explores how self interested government employees make decisions