Chapter 2 Flashcards
Freedman: when you spend your money on yourself
you care how much you spend and buy what is most valuable
Freedman: when you spend your money on someone else
you care how much you spend but you don’t know highest value
Freedman: when you spend someone else’s money on yourself
don’t care how much we spend but buy what is most valuable
Freedman: when you spend someone else’s money on someone else
don’t care how much you spend and don’t know the recipients highest value
free market prices function:
- ration good to consumers who most want them
- give incentives to producers to satisfy consumers
- give incentives to conserve scarce resources
- transmit info throughout the economy
the calculation problem
a problem of the utilization of knowledge which is not give to anyone in its totality
spontaneous order
people organize themselves and interact efficiently if given freedom to do so – lassiz fair
individuals who interact in markets have advantages over state planning
- freedom is agreeable to most people
- markets utilize the ingenuity of millions of minds
- there are millions of small market experiments, which have low risk
- in markets, there are incentives to use resources efficiently
natural experiments
the test of markets of state control work better. not planned experiment but examples include N &S Korea and E vs. W Germany
GDP Per capita
index of economic freedom
- ex. china and india
free countries are better off
public choice school
explores how self-interested government employees make decisions
rational ignorance
if you are uninterested and unwilling to invest time into knowing the candidate, it is more beneficial not to vote
refusing to expend resources to gather info 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 the individuals of the group
individual choice
where individuals decide for themselves
authoritarian choice
involves a single individual or governing body making decisions for the populace
democratic choice
an authoritarian choice made by individuals voting for the entire populace
majority is king
interest groups
the presence of interest groups means the individuals are forced to spend their resources on goods they don’t want
- solution: limiting state power
regulation
originally used by the us constitution to mean “to make regular” today means control
direct cost of regulation
government administrative costs: sacrificed in order to pay government employees to monitor the regulatory program and enforce the statutes
compliance cost: how much must be sacrificed by the regulated entity to follow the law, including reporting costs, planning and administrative costs, and consulting costs
indirect cost of regulation
result from changes in behavior of firms an individuals due to the regulation including:
value of output that is not produced due to the regulation
wasteful activities that the regulation encourage - hiring lobbyists
CAFE
example of regulation – general motors
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
- markets utilize the ingenuity of millions of minds
- there are millions of small market experiments, each with low risk
- in markets, there is competition to serve others
- in markets, there are incentives to use resources efficiently
rent seeking
involves expanding resources to prosper, not by creating value, but by using the legal and regulatory systems
bootleggers and baptists:
form of rent seeking
rent seeker uses other to do his bidding
