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ECON 104 > Chapter 2 pt 2 > Flashcards

Chapter 2 pt 2 Flashcards

1
Q

Capitalism characteristics

A

decentralized decision making
free markets determine prices, wages, allocation
strong emphasis on private property rights
factors of production owned by firms or individuals

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2
Q

incentives created by capitalism

A

profit motive because the incentive to work hard and keep what you earn
people work, invent, research

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3
Q

economic result of capitalism

A

economic growth, technological advancements, higher standards of living, low levels of government corruption

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4
Q

capitalism historically affect

A

it lasts the longest of any so-far invented economic system because it creates incentives that result in growth

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5
Q

importance of property rights: Zimbabwe example

A

farmland expropriation by government
if you take away property rights, your most productive inputs will flee

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6
Q

more government programs will mean

A

higher taxes for everyone

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7
Q

we may want a safety net for vulnerable populations, but we don’t want to

A

disincentivize work and individual effort

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8
Q

capitalism approach to higher education and healthcare

A

pay for college
pay most of healthcare through private insurance

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9
Q

social democracy approach to higher education and healthcare

A

college is “free” but paid by taxes
medical care is “free” but paid by taxes

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10
Q

key lesson between capitalism and social democracy

A

there are always tradeoffs

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11
Q

main difference between capitalism and socialism

A

extent to which the government controls the economy

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12
Q

central planning

A

government decides what to do with resources
citizens may or may not have a say in this

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13
Q

spectrum of economic systems

A

(on pg 31)
most countries are in between social democracy and pure capitalism

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14
Q

people say capitalism operates on greed but in communism

A

people are poor, but the leaders are very wealthy

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15
Q

capitalism has one common complaint

A

inequality- some have more, that isn’t “fair”

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16
Q

the word fair is

A

a normative term

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17
Q

inequality in us capitalism is not because our poor are extremely poor

A

because our rich are very rich

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18
Q

wealth distribution

A

communism: party leaders are the only ones over minimum acceptable standard of living
usa: most over

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19
Q

usa is not pure captalism

A

mixed economic system

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20
Q

7 significant welfare programs

A
  1. supplemental security income (SSI)
  2. medicaid
  3. supplemental nutrition assistance program (SNAP)
  4. child’s health insurance program (CHIP)
  5. temporary assistance for needy families (TANF)
  6. housing assistance
  7. earned income tax credit (EITC)
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21
Q

unemployment insurance is ran by each state but some programs provide

A

vouchers, discounts, cash payments

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22
Q

purpose of welfare programs

A

safety net and to take care of most vulnerable in society
ex. children, elderly, poor

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23
Q

disagreements about welfare programs

A

size and scope of program costs?
us the potential for fraud or bad intentions?

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24
Q

Poorly designed incentives could include

A
  1. benefits that disappear too quickly under certain conditions, such as getting a job or reaching certain income
  2. benefits that are too large or long lasting
    ex. covid unemployment benefits
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25
Q

goal of welfare programs

A

we want people to provide for themselves if at all possible. welfare can help you on your feet, but not become your feet

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26
Q

Better designed incentives

A

proper amount of time and benefits, temporary, gradual phase-out of benefits, earned income tax credit

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27
Q

person responsibility and work opportunity reconciliation act (welfare reform)

A

goal was to reduce long term dependency on welfare for families and instead change the program into a “welfare to work” program

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28
Q

milton friedman advocated for

A

negative income tax at the lowest levels of income to incentivize people to work

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29
Q

universal basic income (UBI)

A

the concept of giving all citizens )not households) of a country a certain amount of money each year. there are NO RESTRICTIONS on what the money can be used for. the amount of money is the same for all people and DOES NOT DEPEND ON OTHER INCOME OR HOURS WORKED

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30
Q

why are some free market oriented economists are in favor of UBI over other social welfare programs?

A

still provides safety net, doesn’t have a marginal effect on work, you still have incentives to work and earn money

31
Q

small example of UBI in usa

A

alaska permanent fund (1976), which pays about $1,600-$2,000 to each person yearly

32
Q

why are market economies desired?

A

they are much more efficient than centrally planned economies in 2 ways

33
Q

2 ways market economies are more efficient

A
  1. product efficiency
  2. allocative efficiency
34
Q

product efficiency

A

a good or service is produced at the lowest possible cost. often a result of competition among firms

35
Q

allocative effieceny

A

occurs in the economy when production is in accordance with consumer preferences; all goods or services are produced up to the point where the last unit provides a marginal benefit to society equal to the marginal cost of producing it
-equilibrium where supply=demand
-markets more towards that outcome

36
Q

when trade happens,

A

buyers and sellers both benefit
resources flow towards highest valued use

37
Q

markets promote efficiency, but

A

may not guarantee it…

38
Q

time lags

A

may take time to discover best production methods or have sufficient competition

39
Q

imperfect information

A

not all economic actors may be aware of all possible products, prices, and markets

40
Q

externalities (your activities harm me)

A

this can produce unaccounted costs lower efficiency

41
Q

government actions

A

trade restrictions, regulations, laws, and policies may prevent exchange and efficiency

42
Q

there is often a trade-off between efficiency and equity:

A

“solution” to that tradeoff depends on your personal and political beliefs

43
Q

market

A

a group of buyers and sellers of a good and the arrangements by which they come together to trade

44
Q

product market

A

market for goods and services
you buy food, clothing, electronics, healthcare

45
Q

factor market

A

markets for the factors of production
-land, labor, physical capital, human capital, entrepreneurial ability

46
Q

you sell your labor in the

A

factor market

47
Q

household

A

consists of all individuals in a home. sometimes we’ll talk about the choices of individuals or households

48
Q

firms

A

the suppliers of goods and services

49
Q

what model we have for two markets (product and factor) and two groups of participants (households and firms)

A

circular flow diagram

50
Q

circular flow diagram

A

income and resources are always opposite

51
Q

households buy in

A

product market

52
Q

households sell in

A

factor market

53
Q

firms sell in

A

product market

54
Q

firms buy in

A

factor market

55
Q

what market actions and participants are missing from the simple diagram?

A

financial system: banks and lending
international trade

56
Q

how are prices of the goods determined?

A

on the us government only sets or regulates 10-20% of prices and GOODS
most prices determined by markets

57
Q

in a market-based economy, prices are determined by the forced of

A

supply (think of selling) and demand (think of buying)

58
Q

firms in a free market

A

have a monetary profit incentive to be efficient and do well

59
Q

households in a free market

A

self-interest rational
goal: make themselves as best off as possible

60
Q

smith (and thousands of economists after him) show

A

provide for everyone more efficiently than central government planning and regulation

61
Q

for the market to function efficiently, prices must be

A

flexible

62
Q

adam smith: the market acts as if it were guided by an

A

“invisible hands”
firms and consumers respond to changes in prices other market conditions

63
Q

prices:

A

provide info about relative
act as a signal to individuals and business
ration scarce goods

64
Q

rationing function of prices

A

synchronization of decisions of buyers and sellers that leads to equilibrium

65
Q

prices ration goods to those who are willing to pay those prices

A

prices: one method of allocation scarce goods
market will eventually reach equilibrium if there is no friction or legal restrictions

66
Q

price rationing

A

leads to most efficient use of available resources
all gains from mutually beneficial trade are captured

67
Q

copyrights and patents:

A

in certain case, I can’t steal your ideas, your intellectual property

68
Q

purpose of patents and copyrights?

A

incentives for innovation
we want to reward creative works and technologies
thus can spur economic growth

69
Q

other benefits of free markets

A

more individual autonomy
more labor mobility
ideally, increased equality of opportunity

70
Q

there are many types of markets we will see, and all will have buyers and sellers

A

who are buyers and sellers?
what is being traded?

71
Q

there will be ___ prices and quantities

A

equilibrium

72
Q

there could be movements or shifts, depending on which variables change

A

study what event or policy causes the change

73
Q
A

ECON 104 (12 decks)

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