Final Exam Flashcards
Public Choice Theory
- The economic theory relating to how much choice the public has in the economic decisions taken by a government. The public does not have a single preference, but many different preferences which cannot all be reflected in a government’s economic policy
- Application of economy to political choice
Economies of Scale
- Cost advantage that arises with increased output of a product.
- Greater Quantity of a good produced -> lower per-unit fixed cost
Diseconomies of Scale
Increase in marginal costs when output is increased
Network Effect
Phenomenon where increased numbers of people or participants improves the value of a good or service
Examples: social media, internet, pretty much all modern tech
Winner Take All markets
-A market in which the best performers are able to capture a very large share of the rewards, and the remaining competitors are left with very little.
Chicago Boys
- Chilean boys made a trip to America
- Their programs centered on reductions to fiscal spending to solve high inflation and economic difficulties. They opened the economy to foreign imports, privatized dozens of state companies, and removed most governmental controls on private economic activity.
Dependency theory
-the notion that resources flow from a “periphery” of poor and underdeveloped states to a “core” of wealthy states, enriching the latter at the expense of the former.
Shock Therapy
- A sudden and dramatic change in national economic policy that turns a state-controlled economy into a free market one.
- Shock therapy is intended to cure economic maladies such as hyperinflation, shortages and other effects of market controls in order to jump-start economic production, reduce unemployment, and improve living standards.
Chinese Socialism
Political control with benefits of the marketplace
Red Directors
- Opposed privatization
- Wanted a re-rise of communism
- Negative force against free markets
‘Loans for Shares’
- Yeltsin’s plan for privatization
- Auctioned shares of some of the largest state industrial assets at low prices
- Unfair, led to the increase of wealth inequality and contributed to political instability
Peristroika plan
-Higher quality standards
-More state funds for capital investment
-Human factor campaign
-Anti-alcohol
-Higher-wages (20% blue collar, 30% specialists)
-Efficiency wage theory (you can increase productivity by paying > market wage vote)
-the policy or practice of restructuring or reforming the economic and political system
greater awareness of economic markets and the ending of central planning
-1987 - abolition of output targets
-Allowance for interaction of suppliers and consumers (within limits)
Glasnost
-Openness about public affairs
-Allowed people to Expose and criticize governmental leaders
-To minimize corruption at the top of communist party
-Stalin’s public trial
-Nationalist movement in baltic republics
-Democratization (the 3rd prong)
-Attempt to mobilize ground-up reform
the policy or practice of more open consultative government and wider dissemination of information
-“the state of being open to public knowledge”
-Gorbachev’s political success and economic failure
Capital Flight
- Occurs when financial assets and capital rapidly flow out of a country due to events such as political or economic instability, currency devaluation (during Yeltsin, the ruble collapses) or the imposition of capital controls.
- Investment $ leaving for better opportunities abroad
Soft Budget Constraint
- Encourages non performance.
- This characterizes an economic entity, usually a firm, that is likely to receive government support if it gets into financial difficulty. Common in current and former state owned enterprises in economies in transition, this undermines their incentive to perform productively and efficiently.
Principal-Agent Problem
- gives us a new way to study an important dimension of
inequality: differences in power affect the type of choices that a person may feasibly make. - Principals are in a position to exercise power over agents, but agents rarely can exercise power over principals
- Elected officials have different goals than the constituents
“Russia Today”
- The media arm of Putin. You wouldn’t know that it’s state TV
- Chaos of disinformation
- They actually allow some “safe” criticism and making fun of Putin so that it looks like a legitimate reflection of society
Reasons for USSR slowdown after 1955
- Labor force growth falls
- Productivity growth falls
- Depletion of natural resources increases costs
- Aging capital stock drains growth
Putin’s Revenge
- saw teardown of the berlin wall as an embarrassment to russia
- Putin blamed Hillary clinton for trying to tear down russia
Xi Jinping
- Priorities not with the economy, but with the power of the Communist Party and China’s standing in the world.
- Mr Xi’s China is a dominant engine of global growth
- invests in infrastructure abroad
- Doesn’t seek to subvert democracy, but is bringing “communist” back into China
- China’s purchasing power basis is increasing
- Armed forces growing fast
China doesn’t play fair because…
- Illegal: Declining, but there is illegal activity such as theft of intellectual property
- Intense: Intense but legal competition—is far more important. Chinese firms have proven that they can make good products for less.
- Unfair: Unfair competition: sharp practice that breaks no global rules.
