Final Flashcards

1
Q

Briefly describe the method of economics according to Mises and Rothbard: In what way is their method different from that of other schools of economics?

A

Using praxeology, and uses logic: Assert A, if A then B; if B then C, and so on.
use of scarce means for satisfying the most urgent wants
relations between ends and means, and not their specific contents.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

A scale of values or preferences: how is that implied by any action we choose to perform?

A

actor makes a choice to take action they have essentially ranked all possible ends they can achieve given their scarce means since they have decided that the end they are taking action to achieve is ranked the highest in value to the actor.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

Explain the origin of money according to Austrian economists. What problems does the introduction of money solve?

A

medium of exchange, coincidence of wants, indivisibility, the fact that you can’t trade ¼ of a horse.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

Briefly outline Mises’s argument against central planning.

A

Calculation problem: Prices can’t be calculated because of complexity.

Only a free market can find these out through trial and error. With no market prices, profit opportunities can’t be discovered and scarce resources can’t be used effectively

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

Why would it be impossible for central planners in a society where the means of productions are owned by the state to solve the problem of allocation of scarce resources?

A

No market prices in order to alert of profit opportunities

Economic planners have no means by which to perform economic calculation

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

Briefly outline Hayek’s argument against central planning

A

Prices act as a way to coordinate activities of people with different knowledge and reflect estimate of usefulness

In central planning this can’t happen

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

What kind of knowledge is relevant to Hayek’s knowledge argument against central planning?

A

Knowledge of the specific circumstances of time and place.

Knowledge of the relevant facts

Each person has unique knowledge

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

In what way, if any, is Mises’s calculation argument against central planning different from Hayek’s knowledge argument?

A

Hayek: Knowledge of what customers want allows entrepreneurs to offer at a certain price.

Mises: No way of calculating econ efficiency

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

Describe the relation among time-preference, saving, investment, and consumption in a one-person economy, i.e., in Crusoe’s economy

A

Those with less time-preference are okay with giving up something in the near-term in order for payoff in the future. With investment in Crusoe this means that they are willing to put in work/capital/resources into something now for a payoff in the future. Someone with high time-preference would want something right away and wouldn’t be willing to put in much effort/capital/etc into a future payoff. For consumption, similar, low TP means they are willing to consume something later in order to gain more utility from it.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

The early nineteenth-century economist Bastiat tried to explain how the government’s increase of the money-supply affects the borrowing of scarce resources, with the example of a plow. How is this example relevant to the Austrian theory of the business cycle?

A

Money is only a means of exchange.

Credit inflation distorts this and makes it seem like there is more means of exchange than there is

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

How does Garrison use the production possibility frontier to explain economic growth? What kind of trade-off does the production possibilities frontier represent?

A

to compare consumption and investment. When the economy can put more into investment and consumption the economy is growing (frontier is moving outwards). When people save more and become more future oriented, investment increases at the expense of consumption and the PPF increases at a faster rate

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

How can you represent a market for loanable funds, according to Garrison?

A

Saving = supply of loanable funds
Willingness to borrow = demand
Interest rates = Prices
Amt of loanable funds = quantity

Graph

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

What is a “Hayekian triangle”? Explain how this diagram can be used to relate investment, stages of production, and consumption.

A

Consumable output is produced by a sequence of stages of production. As the PPF moves outwards so does the Hayekian triangle, representing growth in the economy

Increased investment = wider
Increased consumption = taller

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

What is the “derived demand effect”? What is the “time-discount effect”(or “interest rate effect”)?

A

Derived demand: A decreased demand for consumption goods dampens investment activities in the late states of production, reducing the height of the Hayekian triangle

Time-discount: A reduced rate of interest stimulates investment activities in the early stages of production, increasing the base of the Hayekian triangle.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

What is Keynes’s “paradox of thrift”

A

reduction in consumer spending -> excess inventories -> production cutbacks, worker layoffs, and a spiraling downward of income and expenditures ->recession, and less investment.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

What are the effects on the labour market of the derived demand effect and the time-discount effect?

A

Late stages: derived-demand effect > interest-rate effect. Lower wage, less demanded.

Early stages: interest-rate effect > derived-demand effect. Higher wage, more demanded.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
17
Q

Try to explain as clearly as possible the Austrian theory of the business cycle.

A

Excessive growth from instituted interest rates.

Low interest rates -> stimulate borrowing from Banks -> increase in capital spending from new credit. -> widespread “malinvestment”. -> correction/”credit crunch”/”recession”/”bust”, -> money supply contracts -> resources reallocated

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
18
Q

What starts the boom-and-bust cycle according to the Austrian theorists?

A

Inflationary boom -> Credit crunch -> Recession -> Recovery

19
Q

“A tug-of-war.” Why does Garrison use this expression in his explanation of the Austrian business cycle theory?

A

Good credit conditions. Tug b/n consumers and investors

Consumers save less and consume more so pull PPF towards consumption

Investors invest more because it is easy to borrow.

Credit expansion pushes past PPF limit

20
Q

Why do the dynamics of boom-and-bust entail both overinvestment and malinvestment?

A

***Because credit creation is too extensive and investment is easy. Malinvestment happens as a result

21
Q

“Circular flow”: what does Keynes mean by that?

A

Earning and spending are equal and balance each other with changes in the level of employment.

Y = E
Y = C + I + G
22
Q

How are consumption and investment related to each other, according to Keynes?

A

In a private econ: both make up expenditure and together must match income. (Inverse?)

23
Q

What is the cause of downturns in the economy, according to Keynes?

A

A collapse of investment activity due to animal spirits causing unemployment

24
Q

What is “sticky” and why, according Keynes?

A

Prices and the wage rate are sticky downward. It is hard to adjust wages down in a downturn

25
Q

Hayek: “Blame the interest rates.” Keynes: “No, it’s the animal spirits.” What are Hayek and Keynes referring to when they use these expressions in the first rap battle video?

A

Causes of the boom and bust cycle

Hayek: artificially instituted interest rates.
Keynes: the animal spirits of the market.

26
Q

“Hair-of-the-dog.” Why does Hayek use this expression in the first rap battle video to describe Keynes’s recipe for economic recovery?

A

Issuing more credit when Hayek believes credit is what got us into the position in the first place.

Savings need to come first before investing

27
Q

“Don’t use the printing press.” Why does Hayek use this expression in the first rap battle video?

A

Talking about printing money and creating inflation that creates an artificial boom that is driven by the inflation rather than saving.

28
Q

“I want plansby the many, not by the few.” Why does Hayek use this expression in the second rap battle video?

A

Free market where the actions of many people determine what happens in the economy VS central planning where governments and central banks (the few) make the decisions and create the plans for the economy.

29
Q

At the end of his chapter on the Austrian theory of the business cycle, Callahan answers a few objections to the theory. Present one and only one of these objections and Callahan’s answer.

A

Objection: Austrians assume entrepreneurs don’t act rationally in forming expectations.

Answer: Central bank institutes artificial interest rates that distort expectations of entrepreneurs. Entrepreneurs can only predict easing or tightening.

30
Q

Why is the notion of intellectual property objectionable, according to Jacob H. Huebert?

A

It doesn’t allocate a scarce resource. They interfere with private property and voluntary exchange

31
Q

A loaf of bread and a music electronic file: why is this comparison relevant to the issue of intellectual property?

A

Property rights with something tangible like bread is easy to justify because it prevents conflicts of multiple owners of a scarce resource. An electronic file can be reproduced almost infinitely so there are no conflicts between two people owning the product at the same time (it is not really scarce)

32
Q

Present at least one of the arguments in defense of intellectual property. What does Huebert say against this argument?

A

In pharma: Needed because R&D is so extensive and drugs makers wouldn’t produce the drug without the ability to know that they will be able to make a lot of money off it.

Huebert: Italy has weak patent protection for pharma and had lots of innovation. 2/15 of the most innovative medical technologies have had something to do with patents. The rest, not.

33
Q

Mozart’s quote on “stealing” a piece of music from an opera by Gluck. What is the point made by Mozart?

A

That mozart still “has” the music and can play it. That Gluck didn’t steal anything because it still existed for Mozart to play and sell.

34
Q

According to Huebert, should we have prevented Shakespeare from “stealing”the plots of his dramas from previous sources?

A

He puts forth that we are better off because Shakespeare produced in the quantity and quality that he did.

He would’ve wasted his time suing other people if he had IP.

35
Q

Give an example of a patent for technological innovation that has retarded further technological innovations.

A

Wright brothers’ airplane. They spent time suing Curtiss for taking their idea and improving on it rather than improving their own design. They got beat out by French builders soon because they couldn’t fight patents in France.

36
Q

According to Huebert, are musicians and writers in danger of becoming poor if we eliminate copyrights?

A

No. He says that they don’t make much money off of CDs or books, respectively. They make more money off of selling other things as a result of the CDs or books. For example, concerts and speaking engagements.

37
Q

Patents for pharmaceutical drugs. How are they defended? What does Huebert say against patents for pharmaceutical drugs?

A

They are defended through the courts. He says that 2/15 of some of the biggest innovations have had nothing to do with patents. In italy where patent protection for pharma was less, there have been some of the largest innovation.

38
Q

According to Huebert, what is problematic about Rothbard’s argument in defence of intellectual property?

A

Rothbard: contract for copyright

Can only be defended with the one person (others without a signed contract can steal without recourse)

39
Q

In what way is economic freedom compatible with environmentalism, according to Walter Block?

A

For air pollution: It is essentially trespassing as the pollution is going onto someone else’s land.

For waste disposal: Waste sites should be private and not run by the government with internalized costs.

40
Q

According to Block, why is the problem of air pollution not an example of “market failure”?

A

He finds it to be a government failure and the unwillingness or inability to uphold private property rights.

41
Q

Why is privatization of waste disposal the best way to protect the environment from hazardous waste?

A

Because costs would be internalized.

The company would add onto the price, the amount that it costs to dispose of it. If plastic costs more than paper then they would charge more and people would be less willing to use paper unless they valued it highly. The actual harm of the dumping will be felt by the private owners and they will risk losing money unless they act effectively.

42
Q

Outline the difference between mini-archism and anarcho-capitalism (also
known as market anarchy)

A

Mini-archism: Minimal state; Legal, military, and police.

Anarcho-capitalism: abolish the state; legal services from the free market

43
Q

Present at least three arguments against anarcho-capitalism and Roderick Long’s answers to these arguments

A

1) Government is not a coercive monopoly:
a) Already supposing that the government has legitimate jurisdiction
b) Contract is implicit
2) Private protections will battle:
a) War is expensive
b) Incentive for peace
3) There wouldn’t be a generally known body of law
a) The market is better at providing uniformity