Final Exam Prep

Question 1

What was John Stuart Mill’s background?

Answer 1

One of the founders of the philosophy of Liberalism
Made classical economists clearer
Kind of a libertarian, kind of a socialist.

Question 2

Who did JS Mill’s dad know and how did it influence him?

Answer 2

JAmes Mill popularized Bentham’s ideas and helped urge Ricardo to write and be politically active. Both Bentham and Ricardo were bid influences and greatly educatedon JS Mill

Question 3

What were the three books that JS Mill wrote?

Answer 3

Principles of Poltical Economy
Utilitarianism (Refinements of Bentham’s ideas)
On Liberty

Question 4

What was JS Mill’s On Liberty about?

Answer 4

(A libertarian classic in philosophy as a protest against coercive moralism): against the govt. (and his mother) forcing moralism on man.
Similar to the classical school in some libertarian traditions
He rejects the idea that liberty is simply for the purpose of allowing selfish indifference (not trying to legalize pot or prostitution)
Believed that a liberal system will bring people to the good more effectively than physical or emotional coercion.
Believed that economies function best when left to their own devices

Question 5

How does JS Mill defend Say’s Law?

Answer 5

Mill does not believe there can be underconsumption or overproduction.
Believed that liberty lead to better results.

Question 6

What was Mill’s philisophical position on the limits of liberty?

Answer 6

He recognized that government interference under Capitalism could be required by some greater good.

Question 7

What made Mill be classified as a classical liberal

Answer 7

Supported Say’s Law
Strong supporter of Ricardo’s system
Supports free international trade
Diminishing returns to agriculture limit economic growth.
Very much in line with these classical economists.

Question 8

What did JS Mill introduce the concept of?

Answer 8

Supply and Demand Schedules
Also included the ideas of elasticity.
Showed the functional relationship between price and quantity for both supply and demand
Advanced the value theory through this because the market value gets determined through the interaction of supply and demand, which also establishes the quantity demanded.
Simplified and systematized these concepts

Question 9

How did Mill show that Ricardo’s comparative advantage was incomplete?

Answer 9

Shows that Ricardo fails to show how the gain from trade gets divided
Ricardo also ignored the patterns of demand that will also impact terms of trade
Mill also introduces reciprocal demand (the value of an imported good is the value of the commodity exported to pay for it.)
If I export butter, I have to get at least the value of that butter imported through guns.

Question 10

What surprising fact of life did Mill recognize in his Principles book?

Answer 10

How easily free economies bounce back in the wake of devastation.
How quickly things return back to normal.
Recovery mainly depends on whether or not the country has suffered massive depopulation or not. Freedom of labor, capitalism, etc. are required.
If there is a demand for a place, even if it gets burned down, it still bounces back quite quickly if people want it.

Question 11

Even though he is regarded as the last great classical economist, what did Mill remain sympathetic towards?

Answer 11

Socialism
Had a humanistic concern for greater equality of wealth and opportunity.
Didn’t think it was fair for a wealthy child to grow up and stay wealthy. Doesn’t like how some people receive wealth through no effort of their own. Doesn’t think its fair that people are poor through no fault of their own.

Question 12

What did Mill focus on in his books within the Principles Text?

Answer 12

In the first three books, he focused on statics (economic laws of a stationary and unchanging society)
In the last two books, he added Dynamics (economic in the context of a changing society) These changes were brought on by progress, or alterations in distribution/production. Societal-wide changes through evolution that move society in different directions.

Question 13

What was the evolution of society?

Answer 13

Futile society, mercantilist economy, capitalism, socialism, communism.

Question 14

What did Mill believe the rate of profit was on the path towards?

Answer 14

Like Ricardo, Mill believed that the rate of profit would continue to fall and the entire economic system was on a path toward equilibrium.
Thought the economic would end in a stationary state. Unlike Ricardo, Mill was not pessimistic about this state. He believed that wealthy countries such as England were near equilibrium and oculd not work to perfect humanity buy working on moral goals.

Question 15

What was Mill’s main concern about socialism?

Answer 15

Concerned about equality of opportunity: he does just want to tax the wealth, but also wants to give everyone a good education

Question 16

What did Mill believe about the stationary state?

Answer 16

That it is a precondition for lasting social reform
Once this state is reached, the state could get on with solving the problems that really mattered (equal distribution).
Believed that a stationary state could lead us to perfection

Question 17

How does Mill take Ricardo Too far?

Answer 17

Mill totally dicorced the principle of distribution from the laws of production.
The idea that if you produce a whole lot more, then you will get to have a whole lot more.
The flaw of socialism.

Question 18

How does Mill take Bentham too far?

Answer 18

Mill diminishes the utility of wealth.
Believed that utility was broader (less materialistic) than Bentham’s take, but the sole measure of what do with society.
Believed in the qualitative separation of pleasures, whereas Bentham treats all forms of happiness as equal.
Mill argues that intellectual and moral pleasures (higher pleasures) are superior to more physical forms of pleasure (lower pleasures).
The “simple pleasures” tend to be preferred by people who have no experience with high art, and are therefore not in a proper position to judge.

Question 19

How did Mill twist Ricardo’s and Bentham’s ideas?

Answer 19

Believed in Ricardo’s stationary state and Bentham-like utilitarianism with a Mill-ian twist.
Beleived the stationary state would get us closer to a world in which people would be free from the pressing demands of economic necessiry and would thus become more open to improvements in the quality of life.

Question 20

What 3 types of socialism did Mill consider?

Answer 20

1. Revolutionary: Radical/violent overthrows (rise up against the current institution and create a better one.)
2. Fascist: Bureaucratic regulation and control of distribution (and yet, supports free enterprise)
3. Utopian: cooperative communities (social Utopian communes that have always
   failed.)
   Critical of teh revolutionary and fascist, but was sympathetic toward the utopian.

Question 21

How does Mill believe the utopian socialist society should be achieved?

Answer 21

Requires much liberty and should not come about by violence.

Question 22

How was Mill like and unlike classical liberals?

Answer 22

Like the classical liberals: non-interference as a general rule and the burden of proof lies with those who promote a new intervention
Unlike classical liberals: Meeting the “burden of proof” only showing that the intervention was expedient in utilitarian terms

Question 23

What was Antooine-Augustin Counot’s Background?

Answer 23

1801-1877
French philosopher and mathematician
Man modern economists believe that his works are the point of departure for modern econ. analysis.
Believed that practical uses of mathematics in economics do not necessarily involve strict numerical precision.
Defended shorthand math to express complex ideas.
Created Law of Deman function: D=f(P)
Believed that economic analysis has to be grounded in empirical observation and facts.

Question 24

What book did Cournot write in 1938?

Answer 24

Researches on the Mathematical Principles of the Theory of Wealth

Question 25

What was Cournot's most famous model of?

Answer 25

Monopoly and Duopoly

Question 26

What is Cournot Competition?

Answer 26

a modern term for an economic model used to describe an industry structure in which companies compete on the amount of output they will produce, which they decide on independently of each other and at the same time.

Question 27

What does the monopoly graph prove?

Answer 27

One must keep producing until Marginal revenue=Marginal costs. When MC=MR, then the slope of Total costs and total revenues must be the same. To make the most profit, you want to biggest difference between TR and TC.

Question 28

What must one assume when examining Cournot's duopoly graph?

Answer 28

Each producer assumes that the other will keep his output constant, and that they are making the same thing. Both knwo the AD curve for the product, but they don't have any other information about the other prerson's product. Assume that anything that B does will not affect A

Question 29

What does Cournot's duopoly map tell us?

Answer 29

Without collusion, how much does each firm produce and how much profit will they receive. The duopoly's production rate can be calculated in comparison to a competitive case through the equation N/(n+1). The more sellers you have, the closer you will get to the competitive quantity.

Question 30

What was Jules Dupuit's background?

Answer 30

1804-1866 Italian-born French civil engineer and economist Impact of Econ. included his analysis of: Marginal utility, demand curves, consumer surplus, monopoly pricing situations, marginal cost pricing.

Question 31

How did Dupuit view political economy?

Answer 31

As a combined science of reason and observation. His major effort was aimed at measuring public utility (trying to create a social welfare function. Also aimed to measure the impact of public goods and services.

Question 32

What was Dupuit the first of doing?

Answer 32

Present a cogent discussion of the concept of marginal utility to a demand curve. Concluded that utility dimishes with quantity. Also concluded that each consumer attaches a different utility to the same object according to the quantity he can consume. Believed that at a higher quality, you actually get less marginal utility/happiness. Downward sloping willingness to pay coincides with marginal utility of happiness.

Question 33

What was Dupuit's Provision of public goods and marginal concepts?

Answer 33

Belief that government should provide the goods if the goods cover total annual costs while providing more net utility. The loss of utility must be higher than the gain of utility.

Question 34

What is the Methodenstreit?

Answer 34

German for method dispute German Historical school (Schmoller) vs. Austrians (Menger) Battle over ideas from around 1883-1900.

Question 35

What did those in the Historical School believe

Answer 35

Contended that economists could develop new and better social laws from the collection and study of statistics and historical materials. Specific dynamic institutions are the largest variable in changes in political economy. Thus each country will have its own economic answers. There is no universal law that applies to everyone. Each country has a different historical and social story.

Question 36

What did the Austrians believe?

Answer 36

Economics was the work of philosophical logic. Could only ever be about developing rules from first principles. these rukes can then help us interpret interaction. Menger emphasized the subjective factors of individual action. Human motives and social interaction as far too complex to be amenable to statistical analysis.

Question 37

How does the battle of the methods take place?

Answer 37

Menger acts first: 1883 book investigations into the Method of Social Sciences starts to show flaws of the historical school's approach. The direct attack on the German Historical School lead Schmoller to responded quickly with an unfavorable and quite hostile review of Menger's book.

Question 38

How did the term "Austrian School of Economics" come into existence?

Answer 38

Result of the Methodenstreit Schmoller intended it to be a mean comment that reflected backwardedness and obscuritism of Habsburg Austria compared to the more modern Prussians.

Question 39

How is economics an empirical science?

Answer 39

built on observation Like physics and chemistry Need a hypothesis to test and can only know based on testing the hypothesis through empirical tests

Question 40

How is economics an axiomatic deductive science?

Answer 40

Built on logic Like math (but not necessarrily mathematical) Ideas that can be logical put together to understand a concept Results must be true as long as the logic is correct,

Question 41

What were the empirical science's two types of propositions?

Answer 41

1. Empirical propositions: falsifiable by experience, nothing can be known with certainty, it must be tested. Observational evidence is indispensable for knowledge. Analytical propositions: logical representations combined, true by definition.

Question 42

What is the theory behind empirical statements?

Answer 42

If-then statements can be tested: could be falsified by experience. Hypothesis: If A then B If we observe A and then B we cannot reject: we have some confirmation, but we have not verified absolute truth. So far, the hypothesis hasn't been falsified. If we observe A and then notb we can reject: The statement has been falsified: Falsification does not mean A is not the cause of B, all it means is that they aren't relaed as the initial hypothesis is stated. Maybe we need to control for C,D, and E and then, "If A then B."

Question 43

How do we study empirical growth?

Answer 43

We gradually approach the truth by continual observations and refinements of our hypothesis. Formulate, test, falsify, refine (new formulation)

Question 44

Why is economics empirical?

Answer 44

Because we cannot know unless we experiment and observe. | We can refine our hypothesis if we have falsified our original hypothesis.

Question 45

What is a modern example of empirical economics?

Answer 45

Money supply practices and the growth of wealthL many economists believe that the Fed could guide the US economy towards wealth creation. When it doesn't work, only the original claim, not the logic, is falsified. Maybe we needed more, or maybe itwasn't timed correctl, or maybe another implementation route etc.

Question 46

What was the anti-empiricist argumentation?

Answer 46

When it comes to human action, it is very challenging and potetntially impossible to keep this constancy assumption required by the empirical approach. Economics is about complex phenomenon The axiomatic deductive approach when applied to human action: may not tell us much about eh real world, but what it does tell us may be of great importance. .

Question 47

What is the Methodenstreit?

Answer 47

German for method dispute German Historical school (Schmoller) vs. Austrians (Menger) Battle over ideas from around 1883-1900.

Question 48

What did those in the Historical School believe

Answer 48

Contended that economists could develop new and better social laws from the collection and study of statistics and historical materials. Specific dynamic institutions are the largest variable in changes in political economy. Thus each country will have its own economic answers. There is no universal law that applies to everyone. Each country has a different historical and social story.

Question 49

What did the Austrians believe?

Answer 49

Economics was the work of philosophical logic. Could only ever be about developing rules from first principles. these rukes can then help us interpret interaction. Menger emphasized the subjective factors of individual action. Human motives and social interaction as far too complex to be amenable to statistical analysis.

Question 50

How does the battle of the methods take place?

Answer 50

Menger acts first: 1883 book investigations into the Method of Social Sciences starts to show flaws of the historical school's approach. The direct attack on the German Historical School lead Schmoller to responded quickly with an unfavorable and quite hostile review of Menger's book.

Question 51

How did the term "Austrian School of Economics" come into existence?

Answer 51

Result of the Methodenstreit Schmoller intended it to be a mean comment that reflected backwardedness and obscuritism of Habsburg Austria compared to the more modern Prussians.

Question 52

How is economics an empirical science?

Answer 52

built on observation Like physics and chemistry Need a hypothesis to test and can only know based on testing the hypothesis through empirical tests

Question 53

How is economics an axiomatic deductive science?

Answer 53

Built on logic Like math (but not necessarrily mathematical) Ideas that can be logical put together to understand a concept Results must be true as long as the logic is correct,

Question 54

What were the empirical science's two types of propositions?

Answer 54

1. Empirical propositions: falsifiable by experience, nothing can be known with certainty, it must be tested. Observational evidence is indispensable for knowledge. Analytical propositions: logical representations combined, true by definition.

Question 55

What is the theory behind empirical statements?

Answer 55

If-then statements can be tested: could be falsified by experience. Hypothesis: If A then B If we observe A and then B we cannot reject: we have some confirmation, but we have not verified absolute truth. So far, the hypothesis hasn't been falsified. If we observe A and then notb we can reject: The statement has been falsified: Falsification does not mean A is not the cause of B, all it means is that they aren't relaed as the initial hypothesis is stated. Maybe we need to control for C,D, and E and then, "If A then B."

Question 56

How do we study empirical growth?

Answer 56

We gradually approach the truth by continual observations and refinements of our hypothesis. Formulate, test, falsify, refine (new formulation)

Question 57

Why is economics empirical?

Answer 57

Because we cannot know unless we experiment and observe. | We can refine our hypothesis if we have falsified our original hypothesis.

Question 58

What is a modern example of empirical economics?

Answer 58

Money supply practices and the growth of wealthL many economists believe that the Fed could guide the US economy towards wealth creation. When it doesn't work, only the original claim, not the logic, is falsified. Maybe we needed more, or maybe itwasn't timed correctl, or maybe another implementation route etc.

Question 59

What was the anti-empiricist argumentation?

Answer 59

When it comes to human action, it is very challenging and potetntially impossible to keep this constancy assumption required by the empirical approach. Economics is about complex phenomenon The axiomatic deductive approach when applied to human action: may not tell us much about eh real world, but what it does tell us may be of great importance. .

Question 60

What was Karl Marx known for?

Answer 60

Foumous for his role in the development of the socialist movement (mainly for his criticism of capitalism Wrote Capital and the Communist Manifesto.

Question 60

What was Karl Marx known for?

Answer 60

Foumous for his role in the development of the socialist movement (mainly for his criticism of capitalism Wrote Capital and the Communist Manifesto.

Question 61

What was Marx's approach?

Answer 61

``` L:ooks at historical change of major economic institutions. All societies progress through the dialectic of class struggle (Owners and workers) Dictatorship of the bourgeoisie. ```

Question 61

What was Marx's approach?

Answer 61

``` L:ooks at historical change of major economic institutions. All societies progress through the dialectic of class struggle (Owners and workers) Dictatorship of the bourgeoisie. ```

Question 62

What was Karl Marx's March toward Socialism?

Answer 62

Surplus value (profit) earned by exploited workers not factory owners: labor theory of value: workers thus are the ones creating value

Question 62

What was Karl Marx's March toward Socialism?

Answer 62

Surplus value (profit) earned by exploited workers not factory owners: labor theory of value: workers thus are the ones creating value

Question 63

How does marx take Ricardo's value to fit his desire (exploitation)?

Answer 63

Value was an objective property of all commodities Supply and demand he considered too abstract. Value is determined prior to price Price simply reflects the value of the objective element of a commodity.: nameley the quantity of labor involved in its production.

Question 63

How does marx take Ricardo's value to fit his desire (exploitation)?

Answer 63

Value was an objective property of all commodities Supply and demand he considered too abstract. Value is determined prior to price Price simply reflects the value of the objective element of a commodity.: nameley the quantity of labor involved in its production.

Question 64

What was the flaw in Marx's theory?

Answer 64

It denies the productivity of capital apart from the labor originally bestowed on its production? A labor based economy.

Question 64

What was the flaw in Marx's theory?

Answer 64

It denies the productivity of capital apart from the labor originally bestowed on its production? A labor based economy.

Question 65

Describe what Karl Marx says about private property?

Answer 65

Those who have private property exploit those who do not. Natural progression of economies of scale toward one firm winning and exploitation of monopoly power.: Increased concentration of exploitation power.

Question 65

Describe what Karl Marx says about private property?

Answer 65

Those who have private property exploit those who do not. Natural progression of economies of scale toward one firm winning and exploitation of monopoly power.: Increased concentration of exploitation power.

Question 66

What leads to a revolution?

Answer 66

The conflict between those who have property and those who do not will inevitably lead to revolution. Hegel: believed that history was the result of a dialectic, or struggle, between ideas.: Hegelian dialectic. History is not a series of small changes, but of large state clashes.

Question 66

What leads to a revolution?

Answer 66

The conflict between those who have property and those who do not will inevitably lead to revolution. Hegel: believed that history was the result of a dialectic, or struggle, between ideas.: Hegelian dialectic. History is not a series of small changes, but of large state clashes.

Question 67

What is the deterministic view of history?

Answer 67

Slavery and feudalism leads to capitalism. Capitalism and socialism lead to communism.

Question 67

What is the deterministic view of history?

Answer 67

Slavery and feudalism leads to capitalism. Capitalism and socialism lead to communism.

Question 68

What is socialism and what is communism?

Answer 68

Socialism: social ownership of the means of production and co-operative management of the economy. Communism: a classless, moneyless, and stateless social order structured upon common owndership of the means of production

Question 68

What is socialism and what is communism?

Answer 68

Socialism: social ownership of the means of production and co-operative management of the economy. Communism: a classless, moneyless, and stateless social order structured upon common owndership of the means of production

Question 69

How does socialism come about?

Answer 69

While socialism is inevitable, it will take a revolution to bring it about.: underpriviliged/laborers people should carry out organized revolutionary action. Marx left little doubt that the end of capitalism would come about through the violent revolt of the proletariat.

Question 69

How does socialism come about?

Answer 69

While socialism is inevitable, it will take a revolution to bring it about.: underpriviliged/laborers people should carry out organized revolutionary action. Marx left little doubt that the end of capitalism would come about through the violent revolt of the proletariat.

Question 70

Did Marx talk more about capitalism and socialism/communism?

Answer 70

Marx had more to say aobut the blemishes of capitalism than how to practically implement socialism/communism Exploitation, Boom and bust business cycle crisis, distributional aspects.

Question 70

Did Marx talk more about capitalism and socialism/communism?

Answer 70

Marx had more to say aobut the blemishes of capitalism than how to practically implement socialism/communism Exploitation, Boom and bust business cycle crisis, distributional aspects.

Question 71

What is the Nirvana fallacy?

Answer 71

Comparing actual things with unrealistic, idealized alternatives.

Question 71

What is the Nirvana fallacy?

Answer 71

Comparing actual things with unrealistic, idealized alternatives.

Question 72

What are the five laws of capitalist motion?

Answer 72

1. The law of accumulation and the falling rate of profit 2. The law of increasing concentration and the centralization of industry. 3. The law of a growing industrial reserve army 4. The law of increasing misery of the proletariat. 5. The law of crises and depressions.

Question 72

What are the five laws of capitalist motion?

Answer 72

1. The law of accumulation and the falling rate of profit 2. The law of increasing concentration and the centralization of industry. 3. The law of a growing industrial reserve army 4. The law of increasing misery of the proletariat. 5. The law of crises and depressions.

Question 73

What is Marx's dictatorship of the proletariat?

Answer 73

Socialism would be governed by the working class. | From each according to his ability, to each according to his need."

Question 73

What is Marx's dictatorship of the proletariat?

Answer 73

Socialism would be governed by the working class. | From each according to his ability, to each according to his need."

Question 74

What are the ten planks of the communist manifesto?

Answer 74

1. Abolition of private property and the application of all rents of land to public purposes. 2. A heavy progressive or graduated income tax 3. Abolition of all rights of inheritance 4. Confiscation of the propertty f all emigrants and rebels. 5. Centralization of credit in the hands of the state, by means of a national bank with state capital and an exclusive monopoly. 6. Centralization of the means of communications and transportation in the hands of the state. 7. Extension of factories and instruments of production owned by the state, the bringing into cultivation of waste lands, and the improvement of the soil generally in accordance with a common plan. 8. Equal liability of all to labor. Establishment of industrial armies, especially for agriculture. 9. Combination of agriculture with manufacturing industries, gradual abolition of the distinction between town and country, by a more equitable distribution of population over the country. 10. Free education for all children in public schools. Abolition of children's factory labor in its present form. Combination of education with industrial production.

Question 74

What are the ten planks of the communist manifesto?

Answer 74

1. Abolition of private property and the application of all rents of land to public purposes. 2. A heavy progressive or graduated income tax 3. Abolition of all rights of inheritance 4. Confiscation of the propertty f all emigrants and rebels. 5. Centralization of credit in the hands of the state, by means of a national bank with state capital and an exclusive monopoly. 6. Centralization of the means of communications and transportation in the hands of the state. 7. Extension of factories and instruments of production owned by the state, the bringing into cultivation of waste lands, and the improvement of the soil generally in accordance with a common plan. 8. Equal liability of all to labor. Establishment of industrial armies, especially for agriculture. 9. Combination of agriculture with manufacturing industries, gradual abolition of the distinction between town and country, by a more equitable distribution of population over the country. 10. Free education for all children in public schools. Abolition of children's factory labor in its present form. Combination of education with industrial production.

Question 75

What did the 1967 publication of Das Kapital (Capital) say?

Answer 75

Marx had claimed to have created a new understanding of economics based on universal "scientific" laws. To Marx, his work was the Bible of the working class. It was to open their eyes to how they were on the exploited end of society.

Question 75

What did the 1967 publication of Das Kapital (Capital) say?

Answer 75

Marx had claimed to have created a new understanding of economics based on universal "scientific" laws. To Marx, his work was the Bible of the working class. It was to open their eyes to how they were on the exploited end of society.

Question 76

What is the science that Marx predicts?

Answer 76

Rate of profit declines Working class moves to more and more misery Concentration of monopoly industries.

Question 76

What is the science that Marx predicts?

Answer 76

Rate of profit declines Working class moves to more and more misery Concentration of monopoly industries.

Question 77

What is Marx's lasting legacy?

Answer 77

Empowered socialist ideas: without Marx, there is no Lenin attempting to build a Marxist USSR Humanistic desire to do better: aim at avoiding alienation and exploitation Criticized capitalism: less faith in Laissez faire

Question 77

What is Marx's lasting legacy?

Answer 77

Empowered socialist ideas: without Marx, there is no Lenin attempting to build a Marxist USSR Humanistic desire to do better: aim at avoiding alienation and exploitation Criticized capitalism: less faith in Laissez faire