what happens if we leave prices free to adjust and consumers and producers free to transact?
end up maximizing the gains to society from production
spend your money on yourself…
care how much you spend and buy what is most valuable
spend you money on someone else…
care how much you spend but don’t know the recipients’ highest value
use someone else’s money spent on yourself…
don’t care how much money, but by what is most valuable
use someone else’s money to spend on someone else…
don’t care how much money spend and don’t know the recipient’s highest value
free market prices function to…
ration goods, give incentives, and transmit info
“the calculation problem”
how to secure the best use of resources known to any members of society, for ends whose relative importance only these individuals know
dude who came up with the calculation problem
Frederick hayek
spontaneous order
people organize themselves and interact efficiently, if given freedom to do so
individuals who interact in markets have…
advantages over state planning
a major disadvantage of the state
the use of force
natural experiement
drawn on arbitrary border across a country, let alone one part be free and the other be controlled by the state
what kind of countries are more well off?
more free countries
understanding with free markets starts with…
value, people making choices, interacting, to find more value in life
“public choice school”
participants in the political sphere aspire to promote the common good
theory of rational ignorance
explains how the worst can rise to the top (ignorant of countless bits of info)
rational ignorance
refusing to expand resources to gather info that will almost certainly not lead to a change in the quality of life
the markets encourage the consumer to…
be informed
fallacy of division
thinking that what’s true for a group must be true for all the individuals in a group
individual choice
individuals decide for themselves
authoritarian choice
a single individual/governing body makes decisions for the population
democratic choice
made by individuals voting on decisions for the entire population
interest groups
means that individuals are forced to spend resources on goods they don’t want (old people)
solution to interest groups
limiting state power
“regular” means now…
“control”
it’s profitable for firms to be…
efficient with resources
direct costs of regulation
government admin costs
compliance cost
government administrative cost
sacrificed in order to pay govt employees to monitor the regulatory program and enforce the statues
compliance cost
how much must be sacrificed by regulated entry to follow the law
indirect costs of regulation
results from changes in behavior of firms and individuals due to the regulation
regulation restricts…
choices of consumers and producers (CAFE)
with so many and varied regulations…
no one can know if they are following the law
regulatory capture
when regulators find it more advantageous to work to benefit some firms rather than to perform their duties
when there are a few, huge and regulators…
they often end in errors
rent seeking
individuals expanding resources to prosper (using lobbyists)
bootleggers and baptists problem
rent seeker uses others to do his bidding
status quo minus fallacy
eliminate one element of status quo and conjecture that this element will have only a direct effect that won’t be compensated (think bad behavior will flourish)
law of unintended consequences
intervening in a complex system may create undesirable outcomes
news media don’t…
see what’s below the surface of a story