Chapters 1-9 Economic Logic - Mark Skousen
The benefits principle
"Accountability principle". Those who benefit from a product or service should pay for it.
Certeris paribus
"Other things being equal". Term used as a short hand for indicating the effect of one economic variable on another, holding constant all of the variables that may affect the second variable.
Thomas Robert Malthus (1766-1834)
1. British classical school of economics 2. An essay on the piece of population 3. Key concepts: "Malthusian trap" or the "Malthusian spectre". Surpluses lead to population growth, population growth is geometric but increases in food supply is arithmetic.
Gary S. Becker (1930-2014)
1. Chicago school of Economics 2. The Economics of Discrimination (1971), Human Capitol (1975) 3. Key concepts: economic theory can be applied to many social situations. E.g. criminal activity, education
David Ricardo (1772-1823)
1. Classical school of economics 2. Economics as a science 3. Lower tariffs, gold standard, critic of inflation, principles of political economy & taxation (1817) 4. Law of diminishing returns, comparative advantage in internal trade, labor theory of value.
Five methods to add to long-term profitability
1. Cut costs 2. Increase prices 3. Raise output or production 4. Expand the product line 5. Selling of non-preforming assets
William Stanley Jevons (1835-1882)
1. Founded British school of economics. 2. Studied chemistry and botany 3. The theory of political economy (1871) 4. Jevon's paradox 5. Marginal utility
Price increases occur due to
1. Level of inventories 2. Higher cost of materials 3. Concern about competition
3 outcomes of financial status in companies
1. Make profit 2. Break even 3. Loose money
George J. Stigler (1911-1991)
1. One of the principal spokesman of the Chicago school of free market economy. 2. Industrial organization. 3. Competition and monopoly's. 4. Government regulation and capture 5. Break up in concentrated industry
2 basic fundamentals of human action
1. Peoples wants and desires are virtually unlimited. 2. Resources, for the fulfillment of wants and desires, are limited and largely unusable in their natural state.
W. Edwards Deming (1900-1993)
1. Practical economist 2. Deming Flow Diagram 3. Deming Reaction chain 4. Key concepts: quality control, totally quantity management, PDCA/PDSA cycles
Adam Smith (1723-1790)
1. Scottish economist who wrote "An Inquiry into the Nature and Causes of the Wealth of Nations" 2. Opposed mercantilist policies 3. Advocated free trade and "the Invisible Hand of competition" 4. Laid foundation of classical free-market economic theory 5. Key concepts: Division of labor and rational self interest
Carl Menger (1840-1921)
1. Studied law and political science at University of Vienna 2. Wrote Grundsätze (The Principles of economics) 3. Founder of the Austrian School of Economics 4. Key concepts: principle of marginal utility, value-exchange debate, and theory of imputation
Ludwig von Mises (1881-1973)
1. Wrote "The Theory of money and Credit" 2. Taught at the university of Vienna and New York University 3. Devoted to study of praxeology 4. Key concepts: proponent of Laissez-Faire. He argued against centrally planned economics
law of diminishing returns
A decrease in the marginal output of a production process as the amount of a single factor of production is increased, while the amount of all other factors of production, stay constant. It reaches a point in which there are negative returns.
Aggregate Production Structure (APS)
A four section model. The production process of all goods and services from raw commodities to final output produced in a year. In "make" economy.
concentration ratio
A measure of the total output produced in an industry by given number of firms in the industry
Price of elasticity of demand
A measurement of the change in demand for a good or service in relation to a change in its price
market economy
A private enterprise system where decisions are made by individuals who set prices and determine production of goods and services according to supply and demand
Monopoly
A situation in which one company controls and industry or is the only provider for a product or service. 1. Still under consumer demand. Higher prices means consumers buy less. 2. Product must be considered necessary for people to pay high price. Example: town with one drug store or local electric utility
Oligopoly
A state of limited competition, in which a market is shared by a small number of producers or sellers Example: Coke v. Pepsi. Coke and Pepsi own most of the sodas that are produced
cost-benefit analysis
A systematic process for calculating and comparing benefits and costs of a project
Horizontal Integration
Absorption into a single firm of several firms involved in the same level of production and sharing resources at that level.
law of comparative advantage
Allows individuals, businesses, and nations to produce goods and services at the lowest cost relative to another.
Abraham Maslow
An American psychologist who created Maslow's hierarchy of needs, hierarchy of psychological health predicated on fulfilling, innate human needs and priority, culminating in self-actualization.
Economic Value Added (EVA) or residual income
An economic measure of profit that includes the opportunity cost of capital, can also improve a companies profitability in market share value
Lobbying
Argue or petition to get them to vote in favor of something
Labor Theory of Value (LTV)
Argues that the economics value of a good or service is determined by the total amount of "socially necessary labor" required to produced it.
economics of scale
Big firms gain an unfair advantage because they realize lower average costs due to larger volumes and supplier discounts.
free enterprise economic system
Composed of both competitive & cooperative elements. Laborlands, workers, and capitalists must work together to creat USABLE wealth
variable costs
Cost that do very without power. Greater the output higher, the variable cost. Example: labor, electricity, and materials from suppliers
3 pillars of profitability
Cost, value, & price
substitution effect
Customers are willing to substitute goods with similar or reduced features rather than a higher price. Example: Lululemon dupes
Pure or perfect competition
Description of an industry or market with rigid rules in which no one supplier can influence prices, barriers to entry and exit are small, all suppliers offer the same goods, there are a large number of suppliers and buyers, and information on pricing and process is readily
Elasticity
Determine the reaction of a company's total revenue to changes in price
Profit & loss
Determine what is produced, when it's produced, how much is produce, and when it is produced
Entrepreneurs
Drive the engines of wealth. They are the idea guys
principle of non-discrimination
Everyone pays the same price for a loaf of bread, but companies are looking for ways to make money. Example: a Car dealership will charge a wealthier person more money
Alfred Marshall (1842-1924)
His Principles of Economics brought the ideas of supply and demand, marginal utility and the costs of production into a coherent whole. Developed the concepts of consumer surplus, producer surplus and diminishing returns. He wanted to make political science a science.
What is Henry Ford most well known for in economics?
His moving assembly line
budget constraint
Individuals earn a fixed income each year. Increase prices = afford less
natural monopolies
Industry in which can only support one firm efficiently. Example: road utilities
input-output model
Input = annual expenses of company/ expenses Example: capitol, materials, and shipping distribution Output = annual revenues of company/ profits
Capture Theory
Interest groups and other political participants will use the regulatory & coercive powers of government to shape laws and regulations in a way that is beneficial to them.
Consumers
King of market
anti-trust laws
Laws to keep certain companies from becoming too big
Supply system in in "make" economy - structure of consumer goods
Manufacturer -> agent -> wholesaler -> retailer -> consumer
Speculators
Money that gets the idea running
Land is elastic
Not all land is same price, nor does one get the same amount of land
Jevon's paradox
Occurs when technological process or government policy increases the efficiency with which a resource is used (reducing the amount necessary for any one use), but the falling cost of use increases its demand, increasing, rather than reducing
Maslow's hierarchy of needs
Physiological needs, safety needs, belongingness and love needs, esteem needs, self-actualization
PDCA cycle
Plan, Do, Check, Act
Market as an incentive system
Price increases then people demand it less. price decreases then people will buy it more likely. people make money to buy their wants in life
Supply rises
Prices drops
Supply drops
Prices rise
Ground rent
Rent for land to be used for a building
Monoply of land ownership
Root of all evil according to Henry George
fixed costs
Short run expenses. Very not with output. "Over head" or "sunk cost". Short run, fixed costs are not flexible. Example: office rent, payment for equipment, interest payments on debt
Pareto Optimality
Situation where no action is available that makes one individual better off without making another worse off. Example: Agriculture and financial market
Law of Competition
Take advantage of higher prices of other companies to get customers to buy their products
Rent Seeking/Privilege Seeking
Term by Gordon Tulluch to refer to private companies that obtain special privileges (rents) by lobbying the state that have some negative social value
Sellers rent
The benefits producers, enjoy when they can sell a product or service at a price higher than they expect, or substantially higher than the cost
Seller's or economic rent
The difference between minimum price a seller is willing to sell his product or services for and the actual price the seller receives.
consumer surplus
The difference between the maximum price a consumer is willing to pay in the actual price they pay
Value Added
The economic enhancement, a company gives its products or services before offering them to customers.
Macroeconomics
The part/branch of economics concerned with large scale or general economic factors, such as interest rates, or national productivity. Global. Example: government behaviors. GDP.
Microeconomics
The part/branch of economics considered a single factors in the effects of individual decisions. Example: how a local business decides to allocate their funds
Economics (uncountable) (social sciences)
The study of resources allocation, distribution and consumption of capitol investment; and of management of the factors of production Synonyms: dismal science
Bottlenecks
There are annoying shortages when unexpected demand occurs
Wealth
Useable goods and services that enhance each person's well-being
Derived demand
Value of an intermediate producer, good or service determine by its final demand or change in demand of a substitute good
opportunity cost
Value of next best alternative or forgone activity
"Make" economy
Workers in hundred of organizations involved in the supply system
demand schedule
a table that shows the relationship between the price of a good and the quantity purchased or demanded
supply schedule
a table that shows the relationship between the price of a good and the quantity the producers are willing to sell/supply.
Price drops
demand increases
factors of production
land, labor, capital
Price rises
quantity demanded will fall
marginal utility
satisfaction or usefulness obtained from acquiring one more unit of a product. Example: you need 3 bagels but pay less for 4 bagels
Vertical Integration
the combination in one company of two or more stages of production normally operated by separate companies. Example: you own every step in the process of making a hat
principle of diminishing marginal utility
the decrease in satisfaction a consumer has from the consumption of each extra unit of a good or service