Flashcards in Chapter 2 Deck (28):
How do you spend money on yourself?
You economize and seek highest value
How do you spend money on someone else?
You economize but don't seek highest value
How does someone else spend money on you?
They don't economize, but they seek the highest value
How does someone else spend their money on someone else?
They don't economize, nor seek the highest value.
Free market prices function to
Ration goods to consumers who most want them, give incentives to producers to satisfy consumers, give incentives to conserve scare resources, and to transmit information through the economy.
The calculation problem is a problem how to
secure the best use of resources known to any of the members of society and the utilization of knowledge which is not given to anyone in its totality.
Spontaneous order is
people organizing themselves and interacting efficiently, when given the ability to do so.
North Korea and South Korea are a model of
market efficiency in a controlled versus more free society.
What does the "public choice school" explore?
How self-interested government employees make decisions.
Rational ignorance is
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.
Free markets allow
Authoritarian Choice involves
a single individual or governing body making decisions for the populace. The decision maker may be elected or not.
is an authoritarian choice made by individuals voting on decisions for the entire populace.
Why are authoritarian choices not the same as free market outcomes?
Everyone is bound by others' decisions which are enforced by violence or threat of violence by the state.
The presence of interest groups means that
individuals are forced to spend their resources on goods they do not want.
A solution to interest groups
is limited state power. If the state can't hand out favors, no interest group is willing to give campaign contributions to gain the stat decision maker' favor.
Today, regulation means
Direct costs of regulation are
Government administrative costs and compliance costs
Government administrative costs are
sacrifices in order to pay government employees to monitor the regulatory program and enforce the statutes.
Compliance costs are
how much must be sacrificed by the regulated entity to follow the law (report costs, planning and administrative costs, and consulting costs)
Indirect costs of regulation are
the results from changes in behavior of firms and individuals due to the regulations (i.e. wasteful activities that regulation encourages,
based on how much consumers value a good.
Supply is based on
how expensive the good is to produce.
occurs when regulators find it more advantageious to work to benefit some firms in their industries rather than to perform their oversight duties
involves individuals expending resources to prosper by using the legal and regulatory systems
Status quo minus fallacy is
a consideration of the status quo, minus one element, and saying that this will cause a direct effect that will never be compensated for.