Austrian School

Question 1

Austrian school of economics main rejection

Answer 1

They reject the homo economicus model on the basis of asymetric information on markets

Question 2

Austrian school on human ignorance

Answer 2

Human beings are incapable of having perfect information about the market, they are resigned to local information, the effect is economic planning is impossible

Question 3

Ways human ignorance generates opportunities (3)

Answer 3

1. Markets as information processing machine -> prices summarizes consumer information
2. Price signaling and entrepreneurial alertness -> prices communicate demand, and unmet needs
3. Price differences generate arbitrage opportunities -> products sells for different prices in different markets

Question 4

Problems with Austrian School: market for lemons

Answer 4

Market for lemons: Because buyers lack understanding, producers may decrease quality alongside price reductions.

Question 5

Problems with Austrian School: race to the bottom

Answer 5

Race to the bottom: Intense competition pressures producers to lower prices, often achieved by reducing costs through externalizing negative impacts and potentially compromising quality and labor standards to maintain profitability.