Midterm Questions Flashcards
Method of economics Mises, Rothbard
- Scarce means for satisfying urgent wants
- Using praxeology with logic: A then B, B then C, etc.
Praxeology only for materialistic or selfish?
- Concerned with end and means themselves not content
- Ends can be materialistic, selfish, or altruistic (doesn’t matter)
Non-precisive vs. Precisive abstraction
Non-precisive: features are absent from the analysis
Precisive: features are specified as absent
Precisive is false: Horse cannot be absent of colour but colour can not be mentioned.
Perfect Competition
Implications of the notion of human action
- Only individuals
- Ways to attain ends
- Scarce means must be allocated and others ignored
- Uncertainty of the future
- Actions can change something
How is the scale of preferences implied by any action?
Choice between different ends makes ranked ends, chosen end is the highest ranked
Why is time just like any other means?
- Scarce
- Used to achieve ends
- Ends can only be achieved in the future
What role does uncertainty about the future have in our actions relating to cause and effect?
- If certain, actions are unnecessary
- It comes from acts of choice
- and insufficient knowledge of natural phenomena
Difference between consumers’ goods and producers’ goods?
Consumers: Directly serviceable to consumers wants
Producers: Indirectly serviceable to wants
Economic good vs general circumstance of human action and welfare
The scarcity of the good. If the good is abundant and unlimited it cannot be used as a means to service ends so is not an economic good
What could capital goods be traced back to over time?
Nature and labour. No capital
What is time-preference? Interest rates related?
Earlier is better.
Interest rates: reward for lessening time-preference
Insistence on economic value subjective? Fundamental for exchange?
No real way to quantify value (happiness for example)
Exchange wouldn’t happen without a difference in value judgement
Law of diminishing marginal utility?
Each unit has different utility. Large supply will decrease urgency for the good and lower the marginal utility, and vice versa
Can we measure utility of different goods by a common unit (before money)?
We can only rank them and it cannot be multiplied, subtracted, or added.
Response to “increasing marginal utility”?
Utility is based on satisfying most urgent want. This may not be constant.
Eggs.
What is price theory supposed to do?
Explain market value
Cost-of-production explanation? Problems with it?
Cost of inputs + profit
Problems:
- Doesn’t explain non-reproducible goods
- Changes in day-to-day price changes/trends
- Can’t trace back prices
Why is labour theory better than cost-of-production?
Explains how to trace back prices by including labour
Why is subjective theory better than cost-of-production?
- Explains how win-win exchange occurs
- Works for any type of good
- Incorporates truths of cost-of-production theory.
What is the origin of money? Problems it solves?
Accumulation of a medium of exchange
Problems it solves:
- coincidence of wants
- indivisibility
What is fractional reserve banking? Why is it seen as fraud?
Lending money without the reserves
Fraud: If a bank run not everyone could get their money back
Why does fractional reserve banking expand supply of money substitutes?
More warehouse receipts printed than gold reserves
Incentive to print more receipts
What are the checks on inflation in fractional reserve banking?
Free banking checks:
Limits of clientele, client confidence
No checks other than bank policy
What problems of the fractional reserve system were supposed to be solved by central banks?
Takes out clientele limit. Allows for government inflation control
What would happen if fairy doubled the amount of money in pockets?
Purchasing power wouldn’t change
How does an increase in money supply affect distribution of wealth? Who would win or lose?
Benefits first-comers to the economy. Late-comers are fixed income.
What are the checks on monetary expansion in international system with central banks having hard money reserves?
Hard-money deficient countries will have to limit their paper inflation in order to not lose all their hard money
What is fiat money? What are problems with going off the gold standard?
Money with no other value.
Allows governments control over inflation
