Week 2 Flashcards
What are incentives?
something that motivates or encourages someone to do something
When spending your own money on yourself, you will…
care about how much you’re spending and you will buy what you value the most
When spending your own money on someone else, you will…
care about how much you are spending, but wont know the value of the items you are purchasing
When spending someone else’s money on yourself, you will…
not care as much about how much you’re spending, but will still purchase the most valuable items first
When spending someone else’s money on someone else, you will…
not care as much about how much you’re spending and you will not know the value of your purchases
Free market prices function too…
- ration goods to consumers whom most want them
- give incentives to producers to satisfy consumers
- give incentives to conserve scarce resources
- transmit information throughout the economy
the calculation problem
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that people can not grasp to knowledge of the economy and by the time a group of people did, the information would be outdated; it is impossible to understand everything about the economy
Freidrich Hayek
one of the top three economists
spontaneous order
the theory that people will organize themselves efficiently when given the freedom to
advantages of individuals over state planning
- freedom is agreed upon
- millions of minds
- millions of small market experiments with low risks
- in markets there is competition to serve others
- in markets there are incentives to use resources efficiently
what is the major advantage of the state?
their force; markets can not produce national defense because it can not be individually consumed
the natural experiment
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
“public choice school”
explores how self-interested government employees make decisions
theory of rational ignorance
the refusal to expend resources to gather information that will most certainly NOT lead to a change in the quality of life
fallacy of division
thinking that what is true for a group must be true for all of the individuals in that group
individual choice
where individuals choose for themselves
authoritarian choice
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.
democratic choice
is an authoritarian choice made by individuals voting on decisions for the entire populace
Are authoritarian and free market outcomes the same?
No, because authoritarian decisions are bound by others decisions, which are enforced by violence or the threat of violence by the state
What is a special interest group?
a group of people or an organization seeking or receiving special advantages, typically through political lobbying
What presence do special interest groups have on individuals?
individuals are forced to spend their resources on goods they do not want
Safe interest groups concentrate on what?
a few individuals, so that they are small and can be easily overlooked
Special interest groups socialize with candidates how?
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.
By decreasing state power, how can we stop interest groups from burdening the economy?
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
