Chapter 2 Flashcards
What are the four functions of Free Market Prices?
- Ration goods to consumers who most want them
- Give incentives to producers to satisfy consumers
- Give incentives to conserve scarce resources
- Transmit information throughout the economy
What is the Calculation Problem?
If the state is to improve on the market it must know this information better than those who do these jobs
Spontaneous Order is
people will organize themselves and interact efficiently, if given freedom to do so
What are some advantages of Market Systems over single decision makers?
- Freedom is agreeable to most people
- They utilize the ingenuity of millions of minds
- Millions of small market experiments, each with low risk
- Competition to serve others
- Competition to use resources efficiently
What is the main advantage of the state?
The use of force. The founding fathers of the United States, who were not fond of being governed with a heavy hand, realized that some force was necessary. Frederic Bastiat said, “For a nation, security is the greatest of blessings. If, to acquire it, a hundred thousand men must be mobilized…it is an enjoyment bought at the price of a sacrifice.”
Give an example of market vs state control
North Korea and South Korea. South Korea is mostly free while North Korea is completely controlled by the state. Also East and West Germany. Hayek said “Less free states tend to be badly managed”
What is the public choice school?
How self-interested government employees make decisions. One does not have to be the smartest, wisest, or the most compassionate. Election to high office requires a set of skills involving time management and salesmanship, including the ability not to say the wrong thing, to avoid responsibility, to tell people what they already believe, and to avoid taking stands that may prove to be disadvantageous
What is rational ignorance?
Refusing to expend resources to gather information that will almost certainly not lead to a change in the quality of life.
Ex: Voting
The Fallacy of Division is
thinking that what is true for a group must be true for all the individuals of the group
Authoritative Choice
involves a single individual or governing body making decisions for the populace.
Democratic Choice
an authoritarian choice made by individuals voting on decisions for the entire populace.
The presence of Interest Groups means
Individuals are forced to spend their resources on goods they do not want
Who is the largest interest group?
Old people. Social Security and Medicare are 1/3 of the federal budget
What are the Direct Costs of Regulation?
- Government administrative costs- pay gov’t employees
* Compliance cost- sacrificed to follow the law
What are the Indirect Costs of Regulation?
o value of output that is not produced due to the regulation
o wasteful activities that the regulation encourages, such as spending resources to hire lobbyists, to avoid the regulation, or to take advantage of loopholes that are inefficient, except for the regulation–like expensive tax shelters.
