midterm

Question 1

prices

Answer 1

terms of exchange

Question 2

price mechanism

Answer 2

allows individuals to coordinate their own productive efforts and allows a marketplace to harness the creative powers of people in a productive/peaceful manner

Question 3

property rights

Answer 3

the exclusive authority to determine how a resource is used and whether a resource is owned by the government or individuals

Question 4

tragedy of the commons

Answer 4

when individual users act independently according to their own self interest which goes against the common good by depleting a resource

Question 5

logic of choice

Answer 5

everyone is self interested and take actions according to a goal

Question 6

SSCI

Answer 6

scarcity
self-interest
competition
incentives

Question 7

opportunity costs

Answer 7

a way of measuring scarcity; people choose the next best opportunity for themselves when making decisions about trade or purchases

Question 8

self interest

Answer 8

a way of benefitting others with a benefit for ourselves; individuals gain a sense of agency

Question 9

competition

Answer 9

a form of conflict resolution; forms include queueing, violence and productive specialization/trade

Question 10

incentives

Answer 10

financial motivations for people to take certain actions; examples: tax incentives, financial incentives, subsidies, tax rebates, negative incentives

Question 11

market process

Answer 11

inability to provide public goods, monopolies, externalities and asymmetric information

Question 12

rent

Answer 12

payment above the cost involved

Question 13

rent seeking

Answer 13

an individual’s or company’s use of resources to get economic gain without giving back a benefit to society; you get paid more for nothing basically

Question 14

expenditure of scarce resourcesto capture an artificially created transfer of wealth

Answer 14

supply is low, demand is high

Question 15

incentives w/in political markets

Answer 15

lower taxes, tariff reductions, special subsidies are used to lobby for certain decisions or actions to be taken by the government

Question 16

hayek-friedman hypothesis

Answer 16

politically free countries have to be economically free, but economically free countries do not necessarily have to be politically free; example: us & china

Question 17

rule of law

Answer 17

a precondition of political and economic liberty, economic growth and overall human progress; determines if human interaction will be positive sum or negative sum

Question 18

generality (of rule of law)

Answer 18

laws are general and abstract and not specific or concrete; no specific purpose upon individuals or outcomes

Question 19

predictability (of ROL)

Answer 19

implies that laws will be changed on the margin by judges to facilitate coordination between contesting parties according to the circumstances of place and time; laws are transparent

Question 20

equality (of ROL)

Answer 20

laws are applied equally to all (ruler and the ruled); status in society is not predetermined by privilege but rather discovered by serving others

Question 21

elements of private property rights

Answer 21

exclusive right to resource’s services, right to delegate, rent or sell any portion of rights at price set by owner and exclusivity of rights to choose resource’s use

Question 22

5 pillars of economic freedom

Answer 22

• size of the government
• legal system and security of property rights
• sound money
• freedom of trade internationally
• regulation of credit, labor, and business

Question 23

comparative advantage and ROL

Answer 23

comparative advantage implies that a country could find it advantageous to import some goods even if it could produce them more efficiently than other countries and a country is able to export some goods even if other countries could produce them more efficiently

Question 24

protectionism consequences

Answer 24

policy aimed at restricting imports of foreign goods into a country; not efficient b/c without competition, companies within the industry have no need to innovate (products will decline in quality and be more expensive than products of foreign competitors

Question 25

role of prices

Answer 25

coordinate the separate actions of different people in the same way as subjective values help the individual to coordinate the part of his plans

Question 26

nature of knowledge (hayek)

Answer 26

your knowledge that you create in the process of discovering and understanding things

Question 27

role of markets in coordination

Answer 27

markets do not serve to coordinate but rather are spontaneous which led to coordination among individuals

Question 28

i, pencil

Answer 28

cooperation without a design or command to do so

Question 29

components of market competition

Answer 29

free trade
self interest
prices 
competition
players
rules

Question 30

distortionary effects of tariffs and trade barriers

Answer 30

tariffs have unnatural distortionary effects on the supply and demand of markets, they alter who produces what and how much b/c competition is reduced

Question 31

institutions

Answer 31

rules of the game, humanly devised constraints that structure political, economic and social interaction

Question 32

formal institutions

Answer 32

rules, laws, at a firm

Question 33

informal institutions

Answer 33

culture, value, beliefs

Question 34

institutional evolution over time

Answer 34

increase in mobility of capital, decrease in information costs and spread risk