Midterm Review Flashcards
What are fixed cost and fixed cost industries?
An industry that takes a lot of expense to get it started, but then basically functions by itself, despite how many items are involved
Railroads, steamships, movie theaters, Big universities (500 students for one professor)
Federal Income tax
1913
Adamson Act
1916: Under Wilson
RR workers can only work 40 hours a week,
Working overtime=getting paid for a time and a half
Variable costs and variable cost industries
Each new job=more work. Lawn mowing and and construction company, Hillsdale
America was prosperous despite progressive era
- Didn’t affect most industries
2. The power of entrepreneurs can often offset government intervention. (Henry Ford, Wright Brothers, and Gillette)
Airplane industry
Entrepreneurs and government together
Private: helping others and making money
Govt. subsidy: If Europe invents the airplane, then they could fly over and drop a bomb. (must reallocate resources to that which is best for the national interest)
The govt. chose Langley
Langley
Govt. subsidized to create an airplane Thrust theory (thrust the plane in the air) fails
Farmers and smaller merchants complaint of RR rates
Complained about paying more about
Wright Brothers
Flew their first airplane 9 days after Langley’s failed flight
This invention offset the regulations of govt.
King Camp Gillette and the Razor Blade
1855-1932
Wrote “The Human Drift”: needed everyone in the world to live 60 miles within Niagra Falls (water power)
Invented the razor blade (filled a niche)
Razor and 12 blades=$5: expensive
Economies of scale: lower price
Changed fashion b/c it became more efficient to shave
Wrote “The People’s Corporation”: Everyone should move to TX
Who were the purifiers and the separatists?
The purifiers wanted to stay in England and purify the church and government
The separatists believed that the English church wouldn’t change so wanted to go to America.
How did Bradford split up the land in America?
The first year he wanted the community to share the entire land, but that failed miserably.
Second-year: privatization of land. Successful.
What most economists look at when considering a new policy?
The immediate effects and the long term effects
What was Bastiat’s idea of the broken window?
There’s no advantage to destruction. The man with a broken window loses out because he has to replace something instead of adding to his wealth.
This principle relates to wars.
What is the Myth of the union?
Machines replace workers and therefore technology is bad.
Why is Technology good?
Machines produce more, and therefore more men are hired.
People naturally attempt to reduce the effort it requires to accomplish a given result.
Explanation for the world’s increase in population
What happens if a tariff is repealed?
It may hurt one business, but will overall create better or cheaper goods for consumers. It would help both countries.
What is a tariff?
A government regulation that benefits the producer at the expense of the consumer. They indirectly limit the amount outsiders can buy from America. It is the repelling of an invasion of foreign products.
What is the consequence of price-fixing?
It raises the demand for the commodity and lowers the supply of it. Leads to a shortage.
What was the difference between a political entrepreneur and a market entrepreneur?
A political entrepreneur use federal aid and vote buying to create a successful business. Market entrepreneurs created superior products at a lower cost without government funding
What did the gibbons the Ogden case do?
It Eliminated the Fulton monopoly and said that federal government could regulate interstate commerce. It also introduced competition into the Steamship industry.
Who was Edward Collins?
The man who owned the steamship government-subsidized company. Was economically wasteful.
Hey Vanderbilt cut prices on his steamship?
- No insurance on this fleet 2. Spent less on the repairs and maintenance 3. Invited second and third class passengers to ride his steamship.
How did government subsidies hurt companies?
It created overall inefficiency. It made the owner not have to innovate and protected him from judgment errors that would have ruined his competitors.
Who was Cornelius Vanderbilt?
Steamship entrepreneur. Beat out Collins and his government regulated company. First man to be worth $100 million.
How did John Winthrop set up the land in America?
He privatized the land and the neighbors volunteered for the betterment of the community.
Very tight knit family
What were Adam Smith’s ideas on economic wealth creation?
Making products are providing services with the goal of personal gain. rational self interest. Society would benefit as a whole if people thought this way.
According to Adam Smith, how does self-interest create competition?
All sellers want to sell high and all buyers want to buy low so competition creates a specific price.
What Did Joseph schumpeter believe about entrepreneurship?
It was the driving force and economic progress. They take a leap of faith to pursue a vision. They also take a personal risk.
How do others benefit from entrepreneurs’ failure?
First, I jejunoileal failures provide critical information about others wants and needs. Second business failure frees up resources for the use of other businesses. Third consumers profit.
What is a corporation and how does it play its role in the economy?
It is a large multiunit business enterprise with many employees. Corporations are more important to the economy but small businesses create competition for these larger businesses.
Why is war not a blessing to the economy?
You create jobs, but you don’t create wealth. You arent moving the global economy forward. Opportunity cost-if we are making bombs, we aren’t making cars. Creation of jobs-money to support jobs could have been allocated someplace else or to pay private workers. Things are being destroyed, and therefore has no net gain
What is the difference between the revenue tariff and a protective tariff?
Revenue tariff-raise tax to pay off a debt.
Protective tariff-tariff designed to help a business be competitive.
What does the sweater industry represent?
The tariff on the British sweater supposedly protect American people and the American business that is not originally competitive. It will eventually make the American people poorer. Great Britain also may hit us with a Retaliatory tariff On American goods sold in Britain. Tariffs never encourage deficiencies.
What are some key elements of mercantilism?
Zero sum game. Gold and silver were the measurement of wealth. Export more than you import. Heavy regulation. Kings and queens created monopolies. Every country should be as sufficient as possible.
How did the British use tariffs to control the American economy?
Went down the American coast and created monopolies. VA-tobacco. They also passed the navigation acts in 1651. They created Enumerated commodities.
How did the British pay the Americans for their goods?
The British would examine the world price of the good the previous year and would give America that amount for their goods. If the world price was higher than what Americans were being paid than the Americans would smuggle their products to the Dutch. So the British establish customs services to check all ships going in and out of American ports. But the custom officers could be bribed or threatened.
What’s in the riot act say?
Mobs should disburse or else it would be imprisoned or flogged. Custom officials still took bribes.
Why did Britain impose the stamp tax?
They doubled their national debt because of the French Indian war so they created the stamp tax, which taxed any paper good. The British thought everyone in the British Empire had to pay it in order to pay off the debt. Americans had a problem with it because it was taxation without representation.
What did the Pacific Railroad Act do?
Created Inion Pacific (UP) and Central Pacific (CP)
Govt. gave them more money every time a new addition of track was laid. This incentivied speed, not efficiency
What did the govt. dictate to the railroad company?
The building strategy and made the railroad builders dependent on the govt. The power to subsidize=power to destroy.
What was the Thurman Law?
Said the UP had to pay 25% of net earnings each year to repay its debt to the govt.
How does a subsidy end in a company bankruptcy?
Subsidy–>inefficiency–>consumer wrath–>govt. regulation–>company bankruptcy.
Who was Henry Villard?
owned Northern Pacific in 1881
1. Manipulated stock, 2. created monopoly 3. Good persuader
Rushed into building to collect subsidies, raised rates, poorly constructed the NP.
Competed with James J. Hill
What was Hill’s strategy for building the Pacific RR?
Chose land that had lots of resources and people could settle in.
he built slowly and developed the export of the area.
Moved immigrants there for a cheap rate if they would till the land.
Built RR for efficiency and durability, not scenery: shortest and leave curviest
What were private companies’ advantage over govt. subsidized companies?
Those who got fed. aid ended up being hung by the strings that were attached to it.
Hill could buy from international businesses, whereas the subsidized transcontinentals had to buy American goods.
What was the counterargument for govt. subsidized companies?
- The social gain for the public was temporary
- Loss of shipping with an inefficient railroad was permanent
- One subsidy turned into many subsidies
- Promoted shady business ethics and political corruption.
- Subsidies required massive lawmaking to keep the transcontinental UP, CP, and NP in action.
What did the ICC do?
Investigate and abolish race discrimination on the RR industry. Bureaucracy grew
What was Hill’s Philosophy in business?
- Build the most efficient line possible
- Use line to promote exports in your section (help others before you can be helped)
- Expand only aas profits follow
What did the Hepburn act say?
Rates had to be made public and applied equally to all shippers and couldn’t be changed without 30 days notice.
Why did entreprenuership flourish in America?
- Presence of private property: Clear definition of ownership
- Economic freedom: freedom of enterprise:
- Reliance upon competition instead of govt. planning to allocate resources
What is freedom of enterprise?
The right of people adn firms to enter any markets they choose and to conduct their own operations as successfully as their abilities, resources, and even luck allow them.
Who was John Jacob Astor:
multi-millionaire fur traders
Participated in world trade
Founded American Fur Company (used merit system)
Traded the best supplies at reasonable rates of exchange
Who was Thomas Mckenney
Astor’s govt.-supported fur trader
Supplied goods to Indians that didn’t interest them
Refused to sell indians liquor and attempted to teach them to be virtuous.
Who was Stevens T. Mason?
He launched a gigantic scheme of state run railroads and canals that almost bankrupted the state.
Became acting governor of Michigan at age 19.
What were the forces that made overseas exploration more profitable?
New technologies, political changes that coincided with search for treasure and advances in shipbuilding technology, and the Protestant Reformation.
What were the advantages of joint stock companies?
First, they allowed investors to spread the risk among many owners. Second the company didn’t have to die when the proprietor did. This shares of stock changed hands.
What were the reasons for the rise of an English-Atlantic civilization?
First, they have the best business practices. Second, they had a social climate receptive to risk-taking. Third, the property rights were so firmly established.
Why was the mercantilist state bad for an entrepreneur?
Wealth was limited because it was measured in gold and silver. The nations position rested on the amount of gold they had. Government regulation used tariffs and subsidies and believed in a zero-sum game.
Who is John Smith?
He believed that those who do not work will not eat. He found tobacco. He believed and giving land to encourage immigration.
Who was Paul Revere?
A premier silversmithing Goldsmith. At age 65, he builds rolling mills to produce sheet copper.
Prior to heavy government regulation, what was the governments role in business?
Government just collected taxes. When taxes became too high, items were smuggled into the Nation.
What did John Locke think about liberty?
The state would shrink as liberty grew-the government that governs best governs least. Laissez faire. The perfect market equals no external forces that affected supply, demand, or competition.
What was the Stamp Act of 1765?
A government stamp was placed on every paper transaction. The stamp was a tax. It taxed everyone at every turn in their daily commerce.
Americans believed in no taxation without representation.
What did the tea act of 1773 do?
A crackdown on smuggling in and out of America. It angered Americans, and shifted the debate from British rights to impose taxes to the process by which government made decisions. The Boston tea party resulted because of this.
