Lecture 3 Flashcards
Why are markets an attractive system relative to alternatives (what are alternatives)
alternatives are monopoly or market socialism
What is consumer sovereignty
consumers have ultimate freedom to buy whatever they would like
what is economic freedom
adults can do whatever they would like in mutually beneficial transitions
what is perfect competition
- identical products
- no power over price
- no entry/exit barriers
- full information
PIIE
what is the invisible hand theory
by pursuing self interest (following invisible hand), you are promoting society more than when you actually intend to promote it
what is the first welfare theorem
under perfect competition, markets achieve pareto efficency
what is pareto inefficiency
impossible to reallocate resources among group so that at least one person is better off without making someone else worse off
what is managerial inefficiency
output produced at lowest cost
what are some restrictions on economic freedom
- selling organs
- selling/buying drugs
- selling alcohol to minors
what are some limitations to consumer sovereignty
- legal drinking ages
- government funded anti-smoking campaign
- China one child policy
what is a deadweight loss
reduction of economic efficiency when market equilibrium for good/service is not achieved
what is market capitalism?
private / decentralized
what is monopoly capitalism
private / centralized
what is market socialism
public / decentralized
what is state directed socialism / communism?
public / centralized
