Chapter 2 Flashcards
(18 cards)
Free market prices function to
Ration goods to consumers who most want them, Give incentives to producers to satisfy consumers, Give incentives to conserve scarce resources, and Transmit information throughout the economy, as explained below
Calculation Problem
If the state is to improve on the market, then politicians must know this information better than people who do these jobs.
Spontaneous Order
that people organize themselves and interact efficiently, if given freedom to do so
natural experiment
we could draw an arbitrary border across a country, let one part be free and let the other part be controlled by the state
public choice school
which explores how self-interested government employees make decisions
rational ignorance
refusing to expend resources to gather information that will almost 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 the individuals of the group
individual choice
where individuals decide for themselves
Authoritarian Choice
involves a single individual or governing body making decisions for the populace
Democratic Choice
is an authoritarian choice made by individuals voting on decisions for the entire populace.
Government administrative costs
sacrificed in order to pay government employees to monitor the regulatory program and enforce the statutes
Compliance cost
how much must be sacrificed by the regulated entity to follow the law, which includes reporting costs, planning and administrative costs, and consulting costs.
Indirect Costs of Regulation
results from changes in behavior of firms and individuals due to the regulation, including
o value of output that is not produced due to the regulation, and
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.
Regulatory capture
occurs when regulators find it more advantageous to work to benefit some firms in their industries rather than to perform their oversight duties.
Rent seeking
involves individuals expending resources to prosper, not by creating value, but by using the legal and regulatory systems
Bootleggers and Baptists
The bootleggers can only make a living if alcohol is illegal, since efficient legal production would put them out of business. So they depend on the Baptists, who also wish alcohol to be illegal, but for non-materialistic reasons, to protect them in the regulatory process
Status quo minus fallacy
is a particular variant of the status quo fallacy. It proposes that we consider the status quo, eliminate one element of it, and conjecture that this removed element will have only a direct effect which will never be compensated for
law of unintended consequences
is the warning that intervening in a complex system may create unanticipated and often undesirable outcomes
