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, as explained below
The calculation problem
a criticism of using economic planning as a substitute for market-based allocation of the factors of production.
spontaneous order
the spontaneous emergence of order out of seeming chaos.
natural experiment
an empirical study in which individuals (or clusters of individuals) exposed to the experimental and control conditions are determined by nature or by other factors outside the control of the investigators, yet the process governing the exposures arguably resembles random assignment.
“public choice school”
theory refers to “the use of economic tools to deal with traditional problems of political science”
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 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. The decision maker(s) may be elected or not.
Democratic Choice
is an authoritarian choice made by individuals voting on decisions for the entire populace.
Government administrative costs—(direct cost)
sacrificed in order to pay government employees to
monitor the regulatory program and enforce the statutes.
Compliance cost (direct cost)
how much must be sacrificed by the regulated entity to follow the law,
which includes reporting costs, planning and administrative costs, and consulting costs.
Indirect Costs of Regulation
results from changes in behavior of firms and individuals due to the regulation, including
• value of output that is not produced due to the regulation, and
• wasteful activities that the regulation encourages, such as spending resources to hire lobbyists,
to avoid the regulation, or to take advantage of loopholes that are inefficient, except for the
regulation—like expensive tax shelters.
CAFE standards
The Corporate Average Fuel Economy… force auto manufacturers to maintain high average fuel efficiency
Ethanol Example
causes the price of gasoline to go up. ethanol regulations cause social losses in markets other than gasoline.
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
using government power in the legal sytstem rather than competing on value and cost
Bootleggers and Baptists (Bruce Yandle)
wanting the same regulations for different reasons.
Status quo minus fallacy
proposes that we consider the status quo,
eliminate one element of it, and conjecture that this removed element will have only a direct effect which will never be compensated for
