Midterm #1 Flashcards
What is a non example of Non-rival consumption?
a. Public Parks
b. Lighthouse
c. Emergency Services
d. Housing
Housing
According to Charies Wheelan, What is the main example of raising Private costs?
a. If you have a hummer, raise the gas tax, emission tax, or weight tax
B. If you have a jet plane impose and raise emission taxes
C. increase social costs to increase private costs
D. none of the above
a. If you have a hummer, raise the gas tax, emission tax, or weight tax
What are the ways Gov. can address imperfect info
a. Gov can correct & publicize accurate warnings based on large quantity data
b. Government can prohibit dangerous products and work
c. Government can mandate behavior
d. All of the above
d. All of the above
In peter H Lindet reading a misleading tactic to slander welfare states is the high taxes reduce work fallacy
a.true
b.false
a. true
The govenment can serve as a natural monopoply
a.true
b.false
a. true
Which of the following is not a market failure?
a. externalities
b.incomplete markets
c. imperfect information
d. none of the above
e.macroeconomic crises
f.monopolies
d. none of the above
How many market failures are there?
6
What are the types of market failures?
- Externalities
- Monopolies
- Imperfect information
- Public goods
- Macroeconomic crisis
- incomplete markets
Standardization is not an important metric to consider when examining trends
a. true
b. false
b. false
it is important
In the U.S. most gov. spending happens at the state or federal level?
State
According to Cassidy, public goods are supplied in sufficient quantity
False
According to Cassidy what are critical properties of public goods
a. can vary from state to state
b. It is impossible to exclude individuals from using it (non excludable)
c. It costs nothing for additional people to use (non-rivalrous)
d. All of the above
e. B & C
e. B and C
Who is John Maynard Keynes?
An influential economist that rejected the classical liberal viewpoint
Classical Liberalism believes that the free market and capitalism are necessary for a functioning Democracy
True
The U.S. government has been exponentially increasing since the 1980s
False
According to Lindert, Bigger government undermine economic growth
False
According to hacker, the free market caused economic growth
False
Which of the following is an advantage of user fees?
a.Transaction costs
b. Underconsumption
c. Benefits those who pay
d. None of the above
c. Benefits those who pay
Perfect info between Buyers and Sellers is necessary for Market Efficiency
True
Why are governments both Big and Small?
a.Population aging
b. Transnational organization (an example of this is the United Nations)
c. Democracy
d. All of the above
d. All of the above
There are five types of market failures?
False
According to classical Liberalism, Government should be as large as possible in order to regulate the free market
False
Public policies dont always foster property
True
The free market movement advocated financial deregulation and tax cuts
True
Milton Friedman’s view about government are most consistent with
Liberalism
The US healthcare system is an example of a monopoly
True
The progressive set out to rescue capitalism, not replace it
True
What is a public good? something that is
Non excludable and Non rivalrous
When used incorrectly, taxation and other forms of governmental regulation:
Disrupt the free market
Social Cost = Private costs + External cost (what does this equation calculate )
Externalities
The US has a smaller government than most rich countries
True
According to Milton Freidman, There are only two ways to coordinate activity of a large population. What are they
Voluntary cooperation of individual people - the free market
and
Central direction- essentially coercion
The government should be the sole provider of goods/services
False (will give government too much power)
Because the gov has intervened to provide public goods and counter negative Extremadura, our lives are better protected
true
In the 1970s The mixed economy was attacked by who
Republican party
Just because the gov. perform tasks less will it cools/should doesnt mean that we should be better off without it
True
Classical Liberalism
Belief in individualism; emphasis on freedom & democracy, free markets; core
principles; government as rule maker & umpire
what are the 5 misleading tactics according to Peter Lindert
- Theoretical models instead of facts
2.Guilty by defiition
3.Who’s in the sample - Riding the cycle
5.High taxes reduce work fallacy
Free riders
People who benefit from the group but give little in return
Laisser-faire
Idea that government should play a small role as possible in economic affairs
Bureaucracy
A system of managing government through departments run by appointed officials
Bureaucrat
Government official
Non rivalrous goods
even when one person uses the good there can use it as well
nonexludable
The supplier cannot prevent consumption by people who do not pay for it
excudable good
a good for which it is easy to prevent consumption by those who do not pay
Rivalrous good
Its use by one individual makes it less available for use by others
Public goods
Goods that are neither excludable nor rival consumption
Light house
non rivalrous and non excludable
Spillovers or externalities
Occur when individual’s market transaction affects other members of the economy
Hidden information
Civil servants (agents) might also have access to information that is not available to the public or other branches of government (principals) and not be willing to share it if it goes against goals
Averse selection
The problem of incomplete information - of choosing alternatives without fully knowing the details of available options
Polarization
The presence of increasingly conflicting and divided viewpoints between the Democratic and Republican parties
Democratic backsliding
A decline in quality of democracy including the extent of participation, the rule of law, and vertical and horizontal accountability
Basic norm essential to society
Mutual toleration and forbearance
Multal toleration
as long as our rivals play by constitutional rules we accept that they have an equal right to exist, compete for power, and govern
forbeaarance
patient self-control; restraint and tolerance
Partisan
Devoted to or biased in support of a party/group/or cause
Economic dynamism
The prosperity for entrepreneurial activity and the existence of business systems that can support it, in a given business environment
Harm principle
The actions of an individual should only be limited to prevent harm to other individuals
Neighborhood effect
Neighborhood effects are community influences on individual social or economic outcomes
What critical thing do you have to do when trying to compare governmental growth and spending?
GDP and GPO
What does Friedman have to say about belief in individuals?
A country is comprised and made up of individuals, not a superior entity
What did Friedman believe was the key political freedom and democracy?
Free markets and capitalism
- believed that markets are more dynamic and therefore lead to greater growth
What’s another name for free markets?
Laissez Faire
What types of views and programs would a Classical Liberal be opposed to?
Keyesianism, FDR’s “New Deal”, LBJ’s Great Society
According to Friedman, what are the Core Principles of Classical Liberalism?
- Scope of government must be limited (“If you put the federal government in charge of the Sahara desert, there would be a shortage of sand in 5 years”)
- Government power must be dispersed
What are the dimensions that contribute to the size of government?
-Spending/Expenditures ($7.2 trillion)
-Employment
-Taxation/Revenue ($6.6 trillion)
What is fiscal policy vs monetary policy?
- Spend more and tax less (fiscal policy)
- Reduce interest rates (monetary policy)
What is a typical classical liberal view that Keynesians tend to reject in terms of the economy and government intervention?
That we can wait for the economy to return to growing on its own
- We can’t wait for the market to take care of itself; need government intervention
What is the thought process behind austerity?
Austerity will lead to no deficit
-taxing more than spending in order to create a surplus
What do Hacker and Pierson argue about the “activist” state?
It has been central to economic success
-Government (not the free market) is what caused early growth in the U.S (expansion of railroads, federal highway system)
-Viewed early business successes as plain luck and consequences of good timing and government
What major area do Hacker and Pierson feel people don’t understand the scope of government involvement in?
Science and Innovation
-pharmaceuticals develop on the backs of government research
-people are unaware how involved the activist state really is in the economy
What is the main reason why the state has to intervene rather than letting the market run its course?
Market failures
When markets work well they lead to ________________.
Lots of economic growth and dynamism in capitalism
What big idea does Cassidy describe in “How Markets Fail?
Pigou’s Concept of Social Cost
-“There are thing I can do in the market that effects the public”
-Prime example is global warming
What is the Coase Theorem that both Wheelan and Cassidy discuss?
Private actors can efficiently handle disputes and compensate for losses as long as
1. Property rights are defined (i.e. law is clear)
2. Transaction costs are low (e.g. few affected parties)
How do Public Goods act as a market failure?
Some goods will not be supplied by the market or will be supplied in insufficient quantity
- Ex: lighthouses, national defense
What issue can arise from public goods being non-excludable?
Free-riding (people consuming without paying)
What are the classifications of goods?
Private good (rivalrous, excludable)
“Free Good” (rivalrous, non-excludable)
“Toll Good” (non-rivalrous, excludable)
“Pure Public Good” (non-rivalrous, non-excludable)
How does Cassidy refer to an externality?
“Negative spillover”
What example do Cassidy and Pierson use to explain externalities?
Global Warming
What does Cassidy believe is a positive externality?
Innovative New Technology and Social Media
What is present when you only have a single firm?
A monopoly
- When there is monopolistic competition firms can charge outlandish prices for low quality
What kind of monopoly might the government act as?
A natural monopoly
- Ex: creating electricity after grid, water after pipes
What might happen in response to natural monopolies?
Since markets are dynamic allowing for new and more efficient private competition to emerge (ex. Netflix vs. Cable television)
Information is most like what kind of good?
a public good as it is non-rivalrous or excludable
What are some examples of how information is not readily available?
- consumers buying faulty or dangerous products because it isn’t efficient (or possible) for individuals to monitor safety (e.g. FDA)
- employees don’t know workplace dangers
- the Market for Lemons (Cassidy)
- Insurance markets routinely falling short (Hacker and Pierson)
How is health insurance a classic problem of imperfect information? (Based on reading by Cassidy, and HP view on Obamacare)
Adverse selection (individuals use private information to sort in/out of market)
What is a classic example of an incomplete market?
insurance
What are some examples of macroeconomic crises?
Recessions and depressions
What are the three types of government failures?
- Rent-seeking
- Moral hazards
- Bureaucratization
What is rent-seeking?
When political interests use government to secure an economic advantage.
What are some examples of “rent”?
Subsidies or favorable taxation/regulation (ex. farmers with agriculture)
- many rents are submerged and non-transparent
How does government mandated licensing affect firms? (According to Wheelan in regards to Manicurists)
Government mandated licensing rules prevent entry or new firms and limit supply, which artificially keep profits high
What is major example of a rent that is inefficient, raises costs for consumers, and reduces productivity?
Sports Stadiums
What happens when individuals/firms are protected against loss?
- Act with less caution
- Make bad outcomes more likely
- Ex: requiring air bags in cars leads to reckless driving
How does Weber view bureaucracy?
As the most efficient and rationalized form of organization
- “The decisive reason for the advance of bureaucratic organization has always been its purely technical superiority over any form of organization.”
Bureaucracies __________ bureaucratic officials
revere
How are bureaucratic officials defined?
By rank, fixed career lines, and seniority (i.e., military uniforms, titles, pay scales)
What did Weber say were consequences of bureaucratization?
- Concentration of power (“The concentration of power of the central bureaucracy in a single pair of hands is inevitable”)
- Durability (Bureaucracy is “hardest to destroy…practically indestructible)
- Increasing subjective indispensability
What does rent-seeking fuel?
Growing size and regulation
What country do the readings describe as fitting the steps towards authoritarianism?
Venezuela
Who is August Comte and what is August Comte’s Positivism?
- One of the founders of sociology; sought a “social physics”
- Human thought evolves from religious, to metaphysical, to scientific
Friedman
Focused on US citizens being truly free having less government control
What are the two main principles of liberalism
Limited government
Free markets
Notable Liberals
Milton Friedman, Adam smith, David Ricardo, JohnStraut Mill, Frederich Hayek
Keynesianism
Government must spend money to stimulate the economy according to Keynes as a response to the great depression. He basically believed that because in the long run we are dead, it is better for government to step in and restimulate the economy instead of the classical liberal approach that wants the government to return to form by itself
New Deal was etablished by:
Franklin Delano Roosevelt
this created a lot of modern social programs that lifted the nation out of the great depression
Great Society was established by:
Lyndon Baines Johnson
main goal was the total elimination of poverty and racial injustice
Collectivism
System in which distribution of goods and services are controlled by the government
Efficiency
Friedman: markets are more efficient, allowing for more growth
GDP
Gross Domestic Product
measures of the total economic output
How is GDP per capita mesured
GDP/Population
Capitalism
an economic system where businesses and individuals operate for profit in a competitive market, driven by private ownership and the pursuit of self-interest.
Core principles of classical Liberalism
- The scope of gov. Should be limited.
2.the Power should be dispersed
Government ONLY as Rule Maker and Umpire
Property rights members agree on the general conditions that will govern relations among them
Monetary Policy
Monetary policy refers to the actions taken by a country’s central bank to control and manage the money supply, interest rates, and financial conditions in order to achieve specific economic goals, such as price stability, full employment, and sustainable economic growth.
Neoliberalism:
unclear, shifting definition but broadly means a preference for deregulation, liberalization, privatization, or fiscal austerity
The US is in what place in terms of total government spending as percent of its GDP compares to other rich democracies
17th
Where is a majority of the U.S government spending going?
Federal Government Budget is healthcare, pensions (esp OASI), military and Interest on National Debt
Deficit:
Spending - Revenue
Debt:
Accumulated Deficit
The (5) Punchlines on Government Size-
- U.S. Govt. Size Increased 19th Century till late 1980s, But Plateaued/Declined Since
- All Rich Democracies Followed Similar Path – Increasing from 19th Century Through 20th Century, and Peaking Late 1980s and Declining Since
3.U.S. has a Smaller Govt. Than Most Rich Democracies
4.Much of Government in US Is At State/Local Not Federal Level
5.National Debt Has Gotten Bigger, But Mostly Due to Insufficient Tax Revenue & Wars
Pareto Efficient/Optimal
When resources cannot be reallocated to make one individual better off without making at least one individual worse off.
Pigou’s Concept of Social Cost
Social costs are the sum of private costs borne by the economic actor and the external costs imposed on others by an activity
Coase Theorem
Private actors can efficiently handle disputes and compensate for losses, so long as:
1.Property Rights Are Defined (i.e. Law is Clear
2.Transaction Costs Are Low (e.g. Few Affected Parties)
Rivalrous and Non Rivalrous
Rivalrous
Excludable – Private goods
Non Excudable- Free Good
Non Rivalrous
Excludable- Toll Good
Non Excudable- Pure public good
Perfect Competition
all companies sell identical products, market share does not influence price, companies are able to enter or exit without barriers, buyers have perfect or full information, and companies cannot determine prices
Oligopoly
Few firms
Natural Monopoly
a single company can produce and offer to sell a product or service at a lower cost than its competitors can, resulting in practically no competition in the market. (ex: telephone lines)
How can the government behave monopolistically?
The antitrust laws prohibit conduct by a single firm that unreasonably restrains competition by creating or maintaining monopoly power
What is a classic problem of imperfect info?
Health insurance
According to Levitsky and Ziblatt, what is the most common instance that enables a rich country to become an authoritarian society? (Hint: Think about 1920s Germany)
Extreme polarization
What is Gray’s main concern?
National Environmental Policy Act and California Environmental Quality Act
Klein talks about the
Everything Bagel Problem- has good intentions, but it is too much across all jurisdictions and federal levels
Moral Hazard
if you know the government will bail you out you’re less averse to unreasonable risk
