Econ-Chapter 2 Flashcards Preview

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Flashcards in Econ-Chapter 2 Deck (35):

If we leave prices free to adjust and leave consumers and producers free to transact, they end up..

Maximizing the gains to society from production


When individuals pay the costs and receive the benefits of their actions they act ...

Efficiently by getting the best they can with limited incomes.


Free Market Prices Function to..

Ration goods to consumers who most want them, give incentives to producers to satisfy the consumers, give incentives to conserve scarce resources, and transmit information throughout the economy.


The 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

People organize themselves and interact efficiently, if given freedom to do so, was, perhaps, first enunciated by Zhuangzi.


Individuals who interact in markets have advantages over state planning:

-Freedom is agreeable to most people
-Markets utilize the ingenuity of millions of minds
-There are millions of small market experiments, each with low risk.
-In markets, there is competition to serve others
-In markets, there are incentives to use resources efficiently.


The major advantage of the state is the use ..



Natural Experiment

Draw an arbitrary border across a country, let one part be free and let the other part be controlled by the state. EX: North and South Korea


More free countries are materially..

well off


The understanding of free markets starts with the idea of..

value, people making choices, interacting, to find more value in life.


Material well being is not really about dollars instead..

It is all about food clothing, medical care, housing, transportation, communication, and all the other things that economies produce.


Public Choice School

Explores how self-interested government employees make decisions.


How does not voting improve a persons well being?

-The election results would not change
-would have saved time and the trouble
-improve there well being


Rational Ignorance

Refusing to expend resources to gather information that will almost certainly not lead to a change in the quality of life. A model that explains things in terms of self interest.


In markets why do consumers seek out information that is valuable?

To be informed on things that affect them.


Fallacy of Division

Thinking that what is true for a group must be true for all the individuals of the group.


Individual Choice

Free markets allow this, where individuals decide for themselves


Authoritarian Choice

Involves a single individual or governing body making decisions for the populace. ex: an official being elected


Democratic Choice

Is an authoritarian choice made by individuals voting on decisions for the entire populace.


The presence of interest groups means ..

Individuals are forced to spend their resources on goods they do not want.


Safe Interest groups

Concentrate gains on a few individuals, so they are s,all and more easily tolerated and overlooked.


Ignorant public only notice special interests when..

There is an arrests, or trial, when illegality is alleged


Ways to stop special interest groups

Limit state power, but some people like the big government, and some are rationally ignorant and are not interested in learning how much they are harmed.


Causes of Regulation

The more regulation the more economies will struggle, the less regulation the more businesses will begin to thrive


Direct costs of regulation

government administrative costs, and the compliance cost


Compliance Cost

how much must be sacrificed by the regulated entity to follow the laws which includes reporting costs, planning and administrative costs, and consulting costs


Government administrative costs

sacrificed in order to pay government employees to monitor the regulatory program and enforce the statutes.


Indirect costs of regulation

Results from changes in behavior of firms and individuals due to the regulation, including value of output that is not produced due to the regulation and wasteful activities that regulation encourages.


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.


What happens when regulatory firms are captured?

This usually happens when large firms result in regulations that favor large firms at the expense of small firms.


What are the disadvantages when regulatory firms are captured ?

We no longer have low risk experimenting entrepreneurs, and instead have big firms and regulators that change the industry. Any error could result in a destabilized economy. Less motivated to use resources efficiently.


Rent Seeking

Involves individuals expending resources to prosper, not by creating value, but by using the legal and regulatory systems.


Bootleggers and Baptists

Form of rent seeking, Bootleggers can only make a living if alcohol is ILLEGAL, and they rely on the Baptists to protect them in regulatory process. This problem prompted the concept of having a group that supports you when you want an opponent to be gone.


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 the conjecture that this 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.