governments and markets

Question 1

societal benefits of markets

Answer 1

market generated prices send signals and provide incentives. when you see a price you can say something about its scarcity. this affects the decisions of consumers and suppliers.

Question 2

alternatives to market - debunk

Answer 2

centralized governments don’t have much info- determining scarcity and surplus is like a guessing game

Question 3

muffling price signals

Answer 3

mask shortage- limiting price gives a signal that there’s no demand for masks.

Question 4

price ceilings for rents

Answer 4

if a seller was renting out hsi apartment for 500 but now the govt says it’s gonna be 400 he’s not gonna rent and keep it to himself. => landlord cannot get money, student can’t find house (supply is less - DWL)

Question 5

rent subsidies

Answer 5

you say you don’t have money for a house, government gives you 100 euro extra, when the government does this to al students demand goes up and prices go up. students want more apartments but the rate at which apartments are being built is slower than the amount of students wanting houses because they have the money. (demand curve goes up to the right)

Question 6

government limitations (3)

Answer 6

economic feasibility, administrative feasibility, political feasibility

Question 7

inducing uncertainty

Answer 7

british entrepreneurs aren’t starting because they don’t know how they’re gonna trade with europe.

Question 8

why do people choose democracy?

Answer 8

voters reward good economic outcomes, in a democracy the president is accountable to everyone, he needs to make everyone happy but an autocrat only needs to keep the elites and military happy to stay in power

Question 9

roving bandit

Answer 9

moves from town to town and taxes 100% tax from them.

Question 10

stationary bandit

Answer 10

take small taxes from a stable territory. they get a monopoly rent they determine how much they tax. and there’s more economic innovation and more long term success this way.

Question 11

predatory theory of states (e.g Glorious Revo)

Answer 11

you tax small but for a very long time but when you need extra tax you need to extend political rights.

Question 12

political rent

Answer 12

the money you receive because you are in a position of political power and there’s no free market.

Question 13

political rent examples

Answer 13

lawyers, mansions, nepotism, restricting foreign goods

Question 14

back to flat rental prices (building more houses- increasing supply)

Answer 14

the home owners don’t want more houses to be built because the value of their house is gonna go down and their house is a huge asset. so they involve themselves in politics to make sure. however the people who rent are here for a few years so they don’t care.

Question 15

repugnant markets

Answer 15

creating a market for certain goods isn’t ethical like hard drugs and organs

Question 16

merit goods

Answer 16

too important the market may not provide enough of like emergency care, vaccine, education

Question 17

public goods

Answer 17

can’t be offered by the market because of collective action problems (roads, defence)