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Macroeconomics > Week 2 > Flashcards

Week 2 Flashcards

1
Q

What are incentives?

A

something that motivates or encourages someone to do something

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2
Q

When spending your own money on yourself, you will…

A

care about how much you’re spending and you will buy what you value the most

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3
Q

When spending your own money on someone else, you will…

A

care about how much you are spending, but wont know the value of the items you are purchasing

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4
Q

When spending someone else’s money on yourself, you will…

A

not care as much about how much you’re spending, but will still purchase the most valuable items first

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5
Q

When spending someone else’s money on someone else, you will…

A

not care as much about how much you’re spending and you will not know the value of your purchases

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6
Q

Free market prices function too…

A
  1. ration goods to consumers whom most want them
  2. give incentives to producers to satisfy consumers
  3. give incentives to conserve scarce resources
  4. transmit information throughout the economy
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7
Q

the calculation problem

A

the problem that people can not grasp to knowledge of the economy and by the time a group of people did, the information would be outdated; it is impossible to understand everything about the economy

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8
Q

Freidrich Hayek

A

one of the top three economists

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9
Q

spontaneous order

A

the theory that people will organize themselves efficiently when given the freedom to

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10
Q

advantages of individuals over state planning

A
  1. freedom is agreed upon
  2. millions of minds
  3. millions of small market experiments with low risks
  4. in markets there is competition to serve others
  5. in markets there are incentives to use resources efficiently
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11
Q

what is the major advantage of the state?

A

their force; markets can not produce national defense because it can not be individually consumed

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12
Q

the natural experiment

A

the experiment of dividing a nation into two groups; one being controlled by state and the other, freedom. Korea is a good example, because there was a divide in the nation breaking the Communist North from the Democratic South. It has been proven that free countries are more wealthy

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13
Q

“public choice school”

A

explores how self-interested government employees make decisions

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14
Q

theory of rational ignorance

A

the refusal to expend resources to gather information that will most certainly NOT lead to a change in the quality of life

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15
Q

fallacy of division

A

thinking that what is true for a group must be true for all of the individuals in that group

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16
Q

individual choice

A

where individuals choose for themselves

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17
Q

authoritarian choice

A

involves a single individual of governing body making decisions for the populace. The decision makers may be elected or not. If the decision maker is elected, the rational ignorance insulates the decision maker from paying the price of making policies that harm the public.

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18
Q

democratic choice

A

is an authoritarian choice made by individuals voting on decisions for the entire populace

19
Q

Are authoritarian and free market outcomes the same?

A

No, because authoritarian decisions are bound by others decisions, which are enforced by violence or the threat of violence by the state

20
Q

What is a special interest group?

A

a group of people or an organization seeking or receiving special advantages, typically through political lobbying

21
Q

What presence do special interest groups have on individuals?

A

individuals are forced to spend their resources on goods they do not want

22
Q

Safe interest groups concentrate on what?

A

a few individuals, so that they are small and can be easily overlooked

23
Q

Special interest groups socialize with candidates how?

A

Special interest groups will “sponsor” candidates by giving them for example, 10k and in return the candidate will usually try and get a million dollare subsidy awarded to the special interest group. This is only illegal if it can be proven that the transaction between the two was planned.

24
Q

By decreasing state power, how can we stop interest groups from burdening the economy?

A

by decreasing state power, the state will no longer be able to give out such subsidies, eliminating the relationship between candidates and special interest groups

25
Q

why is it nearly impossible to decrease state power, so that interest groups are stopped?

A

Because some people like big governments and it would take a strong army to decrease the power of the state. And the rationally ignorant are not interested in learning about how much they’re harmed

26
Q

what does regulation mean?

A

“to take control”

27
Q

What can make firms not use resources efficiently?

A

The government, when the government steps in and regulates firms, the firm can no longer produce the most efficient way. Therefore, prices rise.

28
Q

Less regulations do what to the “water line”?

A

Less regulations on firms improves the efficiency and allows smaller firms to thrive in the economy

29
Q

When do firms move out of the country?

A

When regulations become to high everywhere

30
Q

Costs of regulations can be broken down into 4 regulations

A

1) direct costs of regulations
2) government administrative cost
3) compliance cost
4) indirect costs of regulations

31
Q

What are government administrative costs?

A

sacrificed in order to pay government employees to monitor the regulatory program and enforce the statues

32
Q

What are compliance costs?

A

how much must be sacrificed by the regulated entity to follow the law, which includes reporting costs planning and administrative costs, and consulting costs

33
Q

What are indirect costs of regulations?

A

results in changes of behavior of firms and individuals due to the regulations, including,

  • value of output that is not produced due to regulations
  • wasteful activities that regulations encourage (like taking money to hire lobbyist)
34
Q

What does CAFE stand for?

A

Corporate Average Fuel Economy

35
Q

What does the CAFE do?

A

Forces automobile companies to maintain high average fuel efficiency

36
Q

supply is based on…

A

how expensive the good is to produce

37
Q

demand is based on…

A

how much consumers value a good

38
Q

The free market prices balance off of…

A

the cost of resources used, with the value of the good to the consumer

39
Q

What is regulatory capture?

A

it occurs when regulators find it more advantageous to work to benefit some firms in their industries rather than to perform their oversight duties

40
Q

What happens because of regulatory capture?

A

many regulations end up serving the politically influential

41
Q

What is rent seeking?

A

it involves individuals expending resources to prosper, not by creating value, but by using the legal and regulatory systems. For example, a firm can pay off legislatures so in return they can have tax dollars spent on them

42
Q

Bootleggers and Baptists problem

A

it is a form of rent seeking, because the rent seeker uses others to do his bidding. For example, the bootleggers can only make a living if alcohol is illegal so they depend on the baptists who wish for alcohol to be illegal. Therefore, both groups aim for the same concept but for two different reasons.

43
Q

Status quo minus fallacy

A

proposes that we consider the status quo, eliminate one element of it, and conjecture that this removed element will have only a direct effect which will never be compensated for

44
Q

the law of unintended consequences

A

is the warning that intervening in a complex system may create unanticipated and often undesirable outcomes

Macroeconomics (12 decks)

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