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Macro. Econ Chapter 2 > Chapter 2 > Flashcards

Chapter 2 Flashcards

1
Q

Spontaneous Order

A

The idea that people organize themselves and interact efficiently if given the freedom to do so.

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2
Q

“Free Market Prices” function to do what (4) things?

A

1) Ration goods to consumers who most want them.
2) Give incentives to producers to satisfy consumers.
3) Give incentives to conserve scarce resources.
4) Transmit information throughout the Economy.

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3
Q

The Calculation Problem

A

The idea that “If the state is to improve on the market, it must know the information better than those who do their jobs.” (It is a problem of the utilization of knowledge which is not given to anyone in it’s totality.

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4
Q

Natural Experiment

A

Study (of preexisting conditions of freedom vs. control) used to test whether markets or state control work better in controlling Economic activity.

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5
Q

“Public Choice School”

A

Explores how self-interested government employees make decisions.

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6
Q

Rational Ignorance

A

Refusing to spend resources to gather information that will almost certainly (not) lead to a change in the quality of life.

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7
Q

Fallacy of division

A

Thinking that what is true for a group must be true for all the individuals of the group.

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8
Q

Authoritarian Choice (type of individual choice)

A

Involves a single (individual) or governing body making decisions for the populace.

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9
Q

Democratic Choice (type of individual choice)

A

Is an Authoritarian choice made by (individuals) voting on decisions for the entire populace.

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10
Q

Original Meaning of “Regulate”

A

“To make regular” Trade must not be restricted by individual states.

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11
Q

Today’s meaning of “Regulate”

A

“Control” We may desire some of the benefits of regulation ,but we must always consider the cost.

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12
Q

What are the (2) ‘Direct’ costs of Regulation

A

Government Administrative Cost & Compliance Cost

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13
Q

Government Administrative Costs

A

Sacrificed in order to pay government employees to monitor the regulatory program and enforce the statutes.

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14
Q

Compliance Cost

A

How much must be sacrificed by the regulated entity to follow the law, which includes reporting costs, planning and administrative costs, and consulting costs.

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15
Q

Indirect Costs of Regulation

A

Results from changes of behavior in firms and individuals due to the regulation ,including
>Value of output that is not produced due to the regulation.
>Wasteful activities that the regulation encourages

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16
Q

CAFE

A

Corporate Average Fuel Economy

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17
Q

Regulatory Capture

A

Occurs when regulators find it more advantageous to work to benefit some firms in their industries rather than to perform their oversight duties.

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18
Q

5 Market Advantages

A

> 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
In markets, firms have competition to serve others
In markets, firms have incentives to use resources efficiently

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19
Q

Rent Seeking

A

Involves individuals expending resources in order to prosper, not by creating value, but by using the legal and regulatory system.

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20
Q

Bootleggers and Baptists

A

An interesting form of rent seeking, because the rent seeker uses others to do his bidding. The bootlegger can only make a living if alcohol is illegal, since efficient legal production would put them out of business. So they use the Baptists who also wish alcohol was illegal for stalking purposes.

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21
Q

The Law of Unintended Consequences

A

Is the warning that intervening in a complex system may create unanticipated and often undesirable outcomes.

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22
Q

Milton Friedman said, that if you spend your money on someone else?

A

You Economize but don’t seek the highest value.

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23
Q

Milton Friedman said, that if you spend your money on yourself?

A

You Economize and seek the highest value.

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24
Q

Milton Friedman said, if you spend someone else’s money on yourself?

A

You don’t Economize but seek the highest value.

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25
Q

Milton Friedman said, if you spend someone else’s money on someone else?

A

You don’t Economize and you don/t seek the highest value.

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26
Q

Bastiat points out that the problem with special interest groups is that?

A

The cost is spread so thinly.

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27
Q

Indirect costs of Regulation include?

A

Output that is not produced because it is not profitable under the regulation.

28
Q

The reason Bruce Yandle’s friend accepted the regulation on his lawn mower industry is because?

A

He wanted to put other smaller lawn mover productions out of business.

29
Q

What are some examples of what the state must know to manage the economy as well as the free market?

A

???

30
Q

What did Hayek believe about Economic planning?

A

There is no dispute as to whether planning is to be done or not, (there is going to be planning), question is who plans for who?

31
Q

What advantages does the state have over markets?

A

The state can use force to produce some goods which markets can not produce because they can’t be individually sold and consumed like national defense.

32
Q

What is a noteworthy result shown by the index of Economic Freedom?

A

More free countries tend to have higher incomes.

33
Q

What contradiction did Bastiat point out about Authoritarian rulers who record Economic activity?

A

If it is not safe to let people freely choose things, are Authoritarians made of finer clay?

34
Q

Public Choice School

A

How self interested government employees make decisions.

35
Q

What did Hayek call the curious task of Economics?

A

To demonstrate to men how little they know about what they imagine they can design.

36
Q

What are the material costs and benefits of informed voting?

A

Benefits: Minute probability of changing election
Costs: Expending resources such as time to gather resources that will almost certainly not lead to a change in the quality of life.

37
Q

What is Rational Ignorance?

A

Refusing to expend resources to gather info. that will almost certainly not lead to a change in the quality of life.

38
Q

Why do old people vote?

A

They have low time costs, while younger people have higher time costs.

39
Q

What is the fallacy of division?

A

(The fallacy) of thinking that what is true for a group must also be true for all the individuals of the group. Also can be reversed, what is true for all the individuals must also be true for the group. (fallacy)

40
Q

What are the Alternatives to Individuals Choice?

A

Authoritarian choices- may be made by a dictator, by elected representatives etc.

41
Q

How does Bastiat describe the costs and benefits of interest groups?

A

Someone gets a value of 10 by imposing a value of 15, split among 30 others. ( The cost is spread so thinly that it is not in any individuals interest to rebel, but it harms society overall )

42
Q

T/F/E: Successful interest groups have to be large with many members?

A

(False) -small interest groups are successful because gains are concentrated on a few individuals so they are more easily tolerated.

43
Q

Social Security has succeeded as a special interest program because?

A

Old people who draw benefits vote, people nearly old enough to draw benefits vote, many view the program a retirement program contrary to its structure and legal status.

44
Q

T/F/E: Regulated firms need only produce in a different way, not in a less profitable way than unregulated firms.

A

(False) Unregulated firms produce in the most profitable way.

45
Q

What are the categories of cost of Regulation?

A

DIRECT: Government Administrative Costs + Compliance Costs.

46
Q

What is Regulatory Compliance Cost?

A

How much must be sacrificed by the regulated entity to follow the law.

47
Q

What are (2) Reasons auto companies build fuel efficient cars?

A

Some consumers like fuel efficient cars, and compliance with Regulation standards.

48
Q

T/F/E: CAFE standards could cause increase in employment?

A

TRUE & FALSE : If CAFE standards are producing jobs they are only doing so by destroying jobs elsewhere.

49
Q

T/F/E: Free markets create jobs and never destroy jobs?

A

TRUE & FALSE : They create and destroy jobs, always increasing the value of goods and services that labor produces.

50
Q

T/F/E: All the state’s efforts including CAFE standards have been to lower the price of gas?

A

(FALSE) : The state restricts drilling….

51
Q

In what ways has the state encouraged ethanol use in gas?

A

Ethanol is mandatorily used in most gas, the manufacture of ethanol is subsidized and a tariff restricts the imports of cheaper foreign ethanol.

52
Q

T/F/E: The chief backers of ethanol use are Environmentalists?

A

(FALSE): Corn growers and politicians are the chief backers. Few environmentalists currently support the use of ethanol in gas.

53
Q

What percentage of the corn crop is used to produce ethanol?

A

33%-50% depending on harvest

54
Q

Which products have become more expensive due to ethanol use?

A

Meat, because corn is used in feed, sweeteners made from corn, and other grains etc…

55
Q

Why did oil producer’s pay millions in fines, rather than use cellulosic ethanol?

A

Because it is not manufactured in sufficient quantities to comply with mandate.

56
Q

What is Regulatory capture?

A

When regulators find it more advantageous to work to benefit firms in their industries than to perform their ‘watch dog’ duties.

57
Q

T/F/E: All firms dislike Regulation?

A

(FALSE) : Large firms use regulatory process to their advantage, often times regulation weeds out smaller firms and competitive/rival businesses.

58
Q

What is the role of Bootleggers and the Baptists?

A

Essentially, Bootlegger use Baptists to their advantage, if alcohol was legalized then bootleggers would be out of business. Bootleggers piggy back with baptists to keep alcohol illegal.

59
Q

How have tobacco companies shut out competition through rent seeking?

A

The tobacco law suit requires new entrants to pay a large settlement fee to the government, and flavored cigarettes were banned< flavors were predominant with smaller firms

60
Q

Why was the 1923 minimum wage law for women only passed?

A

To cause women to lose jobs to soldiers returning from Europe.

61
Q

What mistake is made in “Status Quo minus fallacy” as applied to regulation?

A

Thinking that if a regulation is removed, that the only effect will be that previously discouraged bad behavior will expand or that a previously mandated good behavior will vanish.

62
Q

Law of Unintended Consequences

A

Intervening in a complex system may create surprising bad outcomes.

63
Q

By Restricting (Regulating) US firms abilities to emit carbon emissions… (EX: Law of Unintended Consequences)

A

The companies, in turn, will move to other countries and create more pollution.

64
Q

An ‘Unintended Consequence’ of requiring insurers to enroll those with preexisting conditions is?

A

People refuse to insure unless they have the ‘Big Illness’. Raising insurance costs and lowering the amount of insurance in the market, possibly to zero.

65
Q

What is “The man of system” and how does he behave?

A

Adam Smith’s Authoritarian planner thinks that his policies will have their desired outcomes because people have no ability to respond, except in the ways he plans, like game pieces on a board.

Macro. Econ Chapter 2 (1 decks)

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