Econ-Chapter 2

Question 1

If we leave prices free to adjust and leave consumers and producers free to transact, they end up..

Answer 1

Maximizing the gains to society from production

Question 2

When individuals pay the costs and receive the benefits of their actions they act …

Answer 2

Efficiently by getting the best they can with limited incomes.

Question 3

Free Market Prices Function to..

Answer 3

Ration goods to consumers who most want them, give incentives to producers to satisfy the consumers, give incentives to conserve scarce resources, and transmit information throughout the economy.

Question 4

The calculation problem

Answer 4

If the state is to improve on the market, then politicians must know this information better than people who do these jobs.

Question 5

Spontaneous Order

Answer 5

People organize themselves and interact efficiently, if given freedom to do so, was, perhaps, first enunciated by Zhuangzi.

Question 6

Individuals who interact in markets have advantages over state planning:

Answer 6

• Freedom is agreeable to most people
• 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.

Question 7

The major advantage of the state is the use ..

Answer 7

Force

Question 8

Natural Experiment

Answer 8

Draw an arbitrary border across a country, let one part be free and let the other part be controlled by the state. EX: North and South Korea

Question 9

More free countries are materially..

Answer 9

well off

Question 10

The understanding of free markets starts with the idea of..

Answer 10

value, people making choices, interacting, to find more value in life.

Question 11

Material well being is not really about dollars instead..

Answer 11

It is all about food clothing, medical care, housing, transportation, communication, and all the other things that economies produce.

Question 12

Public Choice School

Answer 12

Explores how self-interested government employees make decisions.

Question 13

How does not voting improve a persons well being?

Answer 13

• The election results would not change
• would have saved time and the trouble
• improve there well being

Question 14

Rational Ignorance

Answer 14

Refusing to expend resources to gather information that will almost certainly not lead to a change in the quality of life. A model that explains things in terms of self interest.

Question 15

In markets why do consumers seek out information that is valuable?

Answer 15

To be informed on things that affect them.

Question 16

Fallacy of Division

Answer 16

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

Question 17

Individual Choice

Answer 17

Free markets allow this, where individuals decide for themselves

Question 18

Authoritarian Choice

Answer 18

Involves a single individual or governing body making decisions for the populace. ex: an official being elected

Question 19

Democratic Choice

Answer 19

Is an authoritarian choice made by individuals voting on decisions for the entire populace.

Question 20

The presence of interest groups means ..

Answer 20

Individuals are forced to spend their resources on goods they do not want.

Question 21

Safe Interest groups

Answer 21

Concentrate gains on a few individuals, so they are s,all and more easily tolerated and overlooked.

Question 22

Ignorant public only notice special interests when..

Answer 22

There is an arrests, or trial, when illegality is alleged

Question 23

Ways to stop special interest groups

Answer 23

Limit state power, but some people like the big government, and some are rationally ignorant and are not interested in learning how much they are harmed.

Question 24

Causes of Regulation

Answer 24

The more regulation the more economies will struggle, the less regulation the more businesses will begin to thrive

Question 25

Direct costs of regulation

Answer 25

government administrative costs, and the compliance cost

Question 26

Compliance Cost

Answer 26

how much must be sacrificed by the regulated entity to follow the laws which includes reporting costs, planning and administrative costs, and consulting costs

Question 27

Government administrative costs

Answer 27

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

Question 28

Indirect costs of regulation

Answer 28

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 regulation encourages.

Question 29

Regulatory Capture

Answer 29

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

Question 30

What happens when regulatory firms are captured?

Answer 30

This usually happens when large firms result in regulations that favor large firms at the expense of small firms.

Question 31

What are the disadvantages when regulatory firms are captured ?

Answer 31

We no longer have low risk experimenting entrepreneurs, and instead have big firms and regulators that change the industry. Any error could result in a destabilized economy. Less motivated to use resources efficiently.

Question 32

Rent Seeking

Answer 32

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

Question 33

Bootleggers and Baptists

Answer 33

Form of rent seeking, Bootleggers can only make a living if alcohol is ILLEGAL, and they rely on the Baptists to protect them in regulatory process. This problem prompted the concept of having a group that supports you when you want an opponent to be gone.

Question 34

Status Quo Minus Fallacy

Answer 34

Is a particular variant of the status quo fallacy. It proposes that we consider the status quo, eliminate one element of it, and the conjecture that this will have only a direct effect which will never be compensated for.

Question 35

Law of Unintended Consequences

Answer 35

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