Ch 1 & 2

Question 1

Why did the immigrants come?

Answer 1

To make a better life for them and their children. Most came from class oriented societies and they wanted to get away from that. They came for the equality of opportunity.

Question 2

Why was equality of opportunity available to the immigrants?

Answer 2

Because it was the American dream. They succeeded because that was their only option.

Question 3

What makes up the economic and political miracle of the United States which is the story of the American dream?

Answer 3

1) Voluntary Exchange-no exchange will take place unless both parties benefit
2) unalienable rights- life, liberty, and the pursuit of happiness

Question 4

What were the best times economically for America? Why were they so good for us?

Answer 4

Mid 1800’s-1920’s. because the government was small and acted like an umpire. The invisible hand theory worked.

Question 5

What caused the Great Depression?

Answer 5

A failure of government. It’s the governments responsibility to maintain the value of our money.

Question 6

How did the people cause the government to fail economically?

Answer 6

They were willing to let the government become parents. Tired of being taken advantage of by big businesses. Attracted by the good that a stronger government could achieve. BUT didn’t consider if it would be placed in the right hands. They thought what they were doing was best.

Question 7

What is a bureaucracy and why doesn’t Friedman like them?

Answer 7

Bureaucracies are villains with lots of self interest. They cause slow growth and a decline in productivity.

Question 8

Why is voluntary exchange necessary for both prosperity and freedom?

Answer 8

Because it won’t happen unless both parties believe that they will benefit from it. Zero sum is when only one party benefits from the exchange.

Question 9

What is the price system mechanism? Unintended Consequence

Answer 9

The prices that come from voluntary exchange coordinates the activity of millions of people. Each person has the same profit motive and they don’t have to talk to one another therefore everyone is better off.

Question 10

What are the three functions of prices?

Answer 10

1. Transmission of Information
2. Incentives
3. Distribution of Income

Question 11

Elaborate on the Function of Price: Transmission of Information

Answer 11

The price system transmits only the important accurate information and only to those who need it. Self interest the the motive for the people with the information to get it to the people who can use the information. Example with forest fire—>availability of wood—>pencils

Question 12

What interferes with the transmission of information?

Answer 12

Monopolies-one producer who dominates the economy

Government- tariffs and restraints on international trade

Question 13

Elaborate on the Function of Price: Incentives

Answer 13

Using resources efficiently. Doing the right thing for the wrong reasons. Logging job example. Demand for wood is high>higher payed workers>more people wanting to become loggers. They don’t want the job because they like it. They want it because it pays more!

Question 14

Elaborate on the Function of Price: Distribution of Income

Answer 14

Income depends on the quantity and quality of the resources you control. Must use the 4 factors of production (land/labor/capital/entrepreneurship). Chance and Choice

Question 15

What does chance have to do with the distribution of income?

Answer 15

How we use our resources. Chance comes through our genes and affect our physical and mental capabilities. Determines resources we get from the way we were raised

Question 16

What does choice have to do with the distribution of income?

Answer 16

How we decide to use our resources. For example if we want to improve and add to them. Also time utility. Where we choose to settle, how we choose to use those resources

Question 17

What type of government does Friedman favor? Why?

Answer 17

Local government, because it is more accountable for the people. They have to answer the people. People have the freedom to choose where they want to live. They can move somewhere based on the kinds of service that government offers and if they don’t like it they can move.

Question 18

What are the 4 duties of government?

Answer 18

1. Protect the society
2. Protect every member of society from every other member of society
3. Maintain certain public works
4. Take care of those who cannot take care of themselves

Question 19

Elaborate on why the government should protect the society

Answer 19

Provide us with a military so we can be protected from the violence and invasions of other independent societies.

Question 20

Elaborate on why the government should protect every member of society from every other member of society

Answer 20

We should be provided with police and a federal justice of law

Question 21

Elaborate on why the government should maintain certain public works

Answer 21

It’s too broadly interpreted. It can be directed to preserving and strengthening a free society and to justify unlimited extensions of governmental power

Question 22

Elaborate on third parties and the role of government

Answer 22

A third party is someone who is involved in a voluntary exchange but has no voice in that exchange. If the government steps in and creates regulations for the environment because a factory is producing too much pollution for the surrounding residents, they might not be affordable and cause the factory to shut down. This causes a loss in jobs and creates another third party.

Question 23

What is the best example of limited government and a free market?

Answer 23

Hong Kong. Their population is much bigger than the United States. Their standard of living is high. They’re no tariffs or restraints on international trade the residents are free to buy, sell, work, hire, invest in who/whatever they want. The government sticks to its 4 duties. Supervise currency, facilitate transportation, rules of conduct. Low taxes provide incentives.

Question 24

What is Friedman’s stance on special interest?

Answer 24

They have increased the size of government and increased the national debt. We lose more from others special interests than we gain from our own

Question 25

What is Friedman’s stance on free trade?

Answer 25

There will be clear and accurate transmission of information and foster peace and harmony among nations. He is pro free trade.

Question 26

What is Friedman’s stance on tariffs/protectionism?

Answer 26

He is against protectionism. American producers push for tariffs because they say that competition overseas is not protecting jobs when really it’s the self interest that they’re losing.

Question 27

What is Friedman’s stance on jobs?

Answer 27

We need more than just jobs. We need protective jobs. A job is valuable only if its producing a product that people demand.

Question 28

What is his stance on imports and exports?

Answer 28

It’s ok if we import things that we don’t produce well. Is all apart of specialization and we should continue to produce what we produce best.

Question 29

What is the argument with employment and tariffs?

Answer 29

Tariffs are imposed on an industry. More jobs are created. International producers can’t sell to the United States anymore so now they have less money to spend in the United States. So that’s less money that we’re getting, but our exports are balanced with our imports. Which doesn’t seem so ideal anymore.

Question 30

What are the 3 arguments in favor of tariffs?

Answer 30

1. National Security
2. Infant industry
3. Beggar thy neighbor

Question 31

Elaborate on the national security argument for tariffs

Answer 31

The steel industry has proposed to stock pile steel, but has not presented cost estimates for other ways of providing national security. We can’t be gullible and blinded by good intentions.

Question 32

Elaborate on the infant industry arguement

Answer 32

Provide a temporary tariff so that the new company can compete once its on its feet. They never grow up because they’re being protected

Question 33

Elaborate on the beggar thy neighbor argument for tariffs

Answer 33

Industry creates a monopoly and crushes its competition. A monopoly will impose an export tariff instead of raising the price directly. A monopsony will impose an import tariff on a product. Overall the tariff is paid for by the foreigner. Product doesn’t take advantage of monopoly or monopsony.