Chapter 2 Flashcards
Free Market Prices function to:
- 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
Spontaneous order
people organize themselves and interact efficiently, if given the freedom to do so
The calculation problem says
the state cannot possess and integrate all the information needed to operate as efficiently as individuals in markets
What does the “public choice school” study?
how self-interested government employees make decisions
Rational ignorance
refusing to expend resources to gather information that will almost certainly NOT lead to a change in the quality of life
Fallacy of division
thinking that what is true for a group must be true for all of the individuals of the group
Individual choice
Individuals decide for themselves
Authoritarian choice
single governing body makes decisions for populance
Democratic choice
authoritarian choice made by individuals voting on decisions for the populance
Why does social security succeed?
- old people, who draw benefits, vote
- People nearly old enough to draw benefits also vote
- Many view the program as a retirement program, contrary to its structure and legal status
What are the direct costs of regulation?
Government administrative costs and compliance cost
Indirect costs of regulation
result from changes in behavior of firms and individuals due to the regulation
Regulatory capture
occurs when regulators find it more advantageous to work to benefit some firms in their industries rather than to perform their oversight duties
Rent seeking
involves individuals expending resoources to prosper, not by creating value, but by using the legal and regulatory systems
Bootleggers and Baptists problem
bootleggers want alcohol to be illegal so they can make money, Baptists want it to be illegal because of religion, but both benefit
Status quo minus fallacy
it proposes that we consider the status quo, eliminate one element of it, and conjecture that the removed element will have only a direct effect which will never be compensated for
Law of unintended consequences
the warning that intervening in a complex system may create unanticipated and often undesirable outcomes
What did HAYEK believe about economic planning?
there is no dispute whether planning is to be done or not, but there is dispute whether planning is to be done centrally, by one authority for the whole economic system, or is it to be divided among many individuals
What advantage does the state have over markets?
the state can use force to produce some goods which markets cannot produce because they can’t be individually sold and consumed (like national defense)
What natural experiments have been done on state control of markets?
Korea and Germany
What is a noteworthy result shown by index of Economic Freedom?
freer countries tend to have higher incomes
What did Hayek call the “curious task of economics?”
to demonstrate to men how little they really know about what they imagine they can design
How does Bastiat describe the costs and benefits of interest groups?
benefits are concentrated and the cost is spread thin over many people
T/F regulated firms need only produce in a different way, not in a less profitable way than unregulated firms.
Unregulated firms produce in the most profitable way, hence, a regulation that changes this must lower profits
