Chapters 1-9 Economic Logic - Mark Skousen

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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


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