PRINCIPLES OF MICROECONOMICS

What does ceteris paribus mean or refer to? ________________________. What does mutatis mutandis mean or refer to?

- All other factors that might influence the demand for the product are assumed constant. (other things equal) - As everything else changes at the same time.

What does Smith's Formula state? ________________. What is the most important requirement needed to make Smith's Formula work or be applicable? _____________________. If there is enough of this most important ingredient, what economic policy does Smith's Formula support? ______________. Does this economic policy recommendation policy still apply if there is too little of this most important ingredient?

-Smiths formula is HUMAN NATURE + HUMAN MOTIVATION+COMPETITION= SOCIAL BENEFIT. -Competition. -Laissez Faire No.

What are the three basic questions that all economies throughout history have had to deal with?

-What should we produce -How do we produce it -How do we distribute whats been produced.

What are the two sides or parts of the "How to produce it question?"

1. Which inputs to use to produce a desired quantity of output 2. How shall we organize ourselves to work together to create the products that we chosen to produce.

In material balancing, the Soviets were usually able to attempt a balance after about _____________ iterations.

3 to 4

The ownership of economic property is an essential difference between capitalism and socialism, but "ownership" gives the owner different rights. Identify three different rights of "ownership"

A. Right to use property B. Right to income of property C. Right to determine how property will be used.

In village economies, economic decisions such as what to produce, how to produce it, and how to distribute it were usually made by

Adhere to traditions

Planning" often has the connotation of being precise and optimal. However, in actual practice, the goal of "material balancing" in the Soviet Union was

An (almost) balanced plan that was workable but not anything that was optimal.

During the worst year of the Great Depression in the United States, unemployment reached

Annual basis reached 24.9% or 25%. The worst month was 33%

What type of competition seeks to profit from price differentials?

Arbitrage

Why didn't the Arab boycott against the U.S. and The Netherlands work in 1973-74?

Arbitrage redirected oil to be boycotted countries.

Why does Prof. St. Clair think that socialism will return?

Because capitalism seems to always generate critics and opponents who embrace socialism as an alternative to the evils that they associate with capitalism.

How have attitudes about progress and change changed after the capitalist era began compared to attitudes in pre-capitalist times?

Before the capitalist era, people never expected that things would or could improve. They aspired to a life of little change because change was synonymous with had change. Since the development of capitalism, people expect that their lives will continually improve. They expect and demand change.

Which two types of economies have been the only ones to demonstrate the ability or capacity to address the Fourth Question? _

Capitalism and Socialism

Which assumption - ceteris paribus or mutatis mutandis - best describes the real world? ___________________________

Ceteris Paribus

Which assumption - ceteris paribus or mutatis mutandis - do economists usually prefer for theoretical analysis? _______________________. Why?

Ceteris Paribus because the other assumption is all over the place and with CP it remains constant at all levels.

What type of competition seeks to profit from profit differentials?

Competition of Capitals

What type of competition lead other casinos to follow Resorts' lead? _________________. Was there anything that Resorts could do to eliminate this competition?

Competition of Capitals. No.

In capitalism, markets tend to reward people and distribute rewards based on

Contribution

In the Soviet Union, socialist distribution was based on

Contribution

What type of competition was responsible for Atlantic City's fall from being the "Queen of Resorts?" __________________. Was there anything that Atlantic City could do to eliminate this competition?

Creative Destruction and Competition of Capitals (Florida resorts and automobiles). No.

The development of the North Sea oil fields after 1973-74 is a good example of which type of competition?

Creative Destruction is the best answer but one can also make the case for the competition of capitals or a combo of both.

The redesign of many products (e.g., appliances and autos) to make them more energy efficient is a good example of which type of competition?

Creative Destruction.

What type of competition stems from new products, new processes, new markets, and new forms of business organization?

Creative Destruction.

What type of competition brought Resorts International to Atlantic City? _______________________. What type of competition brought Resorts International to the Bahama casino industry?

Creative Destruction. Competition of Capitals.

What is the Communist Principle of Distribution?

Distribution based on need

What is the "allocation" problem?

Do individuals decide what they want and good for them or do the planners?

According to the rationality assumption, economists argue that people

Do not intentionally make decisions that would leave them worse off or will not knowingly do something that will hurt themselves.

Entrepreneurship is listed among the inputs that are assumed constant when drawing a PPC. What does entrepreneurship essentially consist of? ________________________. Which economic system provides the most support and promotion for entrepreneurship?

Entrepreneurship is the ability to innovate, perceive opportunity and mobilize resources to exploit those opportunities. Capitalism.

What could planning mean in regards to the theory of socialism?

Everyone decides what to do; Smart people are assigned what to do, workers decide what to do with the capital that they work with or the government appoints planners to decide what everyone should do.

What is Laissez-faire

French term adopted by Adam Smith to describe an economic policy of limited government interface in markets. Basically, the government needs to mind their business and let the markets do what they gotta do.

Medicare strives to keep drug prices down, but its injection reimbursement policies produced the opposite result. Why?

From Lecture. Doctors used more expensive injections on patients to receive a high compensation. They basically abused the system.

What is the primary economic mechanism or institution in socialism?

Government Planning

Which country was the first to break the 90-10 rule?

Great Britain

What is our Fourth Economic Question?

How can we develop and grow?

What does the Theory of Voluntary Exchange state or postulate?

If people pursue their own selfish interests in the market then they will only do things that make their lives better.

Economists usually argue that market transactions (trades) make society better off because

If transactions are voluntary then both the buyer and seller will only do a deal if it makes both better off. Unless, there are serious third party affects, society will be better off because the two members of society are better off.

What does the 90-10 rule refer to?

In village economies, it took 90 percent of the workforce working in agriculture to feed themselves as well as the remaining 10 percent. Or Village societies always had about 90% of the population directly employed in agriculture. 10% was the "crust" well educated, well fed upperclass.

What are the two problems always encountered with Communist Distribution? Which is the most important or severe?

Incentives problem and How do we determine need? Incentives problem was more severe.

Since the 1950s, the French have engaged in indicative planning. On the other hand, soviet planning was usually referred to as imperative planning. What is the main difference between the two types of planning?

Indicative Planning is voluntary for business's, workers, public. Imperative Planning was binding on all enterprises. This determined what to produce how to produce and how to distribute whats been produced. Main difference is that one is voluntary the other is mandatory.

On which part of the Production Possibilities Curve would you find inefficient production and/or unemployed resources?

Inside the PPC Frontier.

Why has equal-share distribution been rare to none existent throughout history, but attempts at distribution according to need been rather numerous?

Lacks the moral high ground of distribution according to need.

Who gets the larger (and smaller) shares in each of the distribution systems or criteria described in the textbook?

Larger share goes to those who produce more or contribute more. Smaller shares go to those who produce less and contribute less.

What are the exceptions to Laissez-faire?

Leadership exceptions.

How did taxes affect employment in Chicago in the first half of the 20th century? ________________. How did taxes affect the design of houses in Amsterdam in the 16th century? __________________. What were property taxes based on in the Amsterdam case?

Lecture. Property taxes on the height of the buildings.

How large is the agricultural sector in most developed economies today?

Less than 2%

Which part of the economy was responsible for the revival of Western European economies after 950 A.D., and again during the revival after 1500 A.D.?

Markets and Trade. The market part of the economy and the part of the economy engaged in trade.

What is the primary economic mechanism or institution in capitalism?

Markets.

What was "socialist man and socialist woman?" ___________________________. What role did socialist think "socialist man and socialist woman' would play in the transition from socialism to communism?

Men and woman who learned from living in a socialist economy the wisdom and virtue of distribution according to need.

How did each of the five types of economies determine distribution shares?

Methods of distribution

According to socialists, distribution in a communist economy would be based on

Need

According to the Soviets, what would determine when a socialist economy would be able to transition to a communist economy?

Need could replace contribution in distribution

When economists argue that the Son of Sam was rational, are they condoninghis behavior or explaining his actions? Why or why not?

No. Explaining why an action is undertaken is never itself a justification or an accusation.

What knowledge or information did Columbus rely on for his 1492 voyage? Was he right? ________Was he rational? ______ Why or why not?

No. Way off. He got lucky! He relied on DISTANCE. Yes very rational because he predicted on the weighing of costs and benefits.

What is the primary difference between positive and normative economic analysis?

Normative (opinionated) what people people ought to do. Positive (Factual) what people actually do and how the economy works.

Consider the statement: "A good economy is an economy that produces more goods and services for people." Is this a positive or normative statement? _________ Why? _

Normative. If everyone is not on the same page about this then there will never be an agreement. This causes an ethical dilemma.

Consider the statement: "Keeping the minimum wage at its current level is unfair." Is this a positive or normative statement? _

Normative. This causes an ethical dilemma.

What did OPEC do (or could have done) to effectively eliminate or control creative destruction?

Nothing.

What did OPEC do (or could have done) to effectively eliminate or control product competition? ____________. What did OPEC do (or could have done) to effectively eliminate or control the competition of capitals?

Nothing. Nothing.

What could Las Vegas casino owners do to stop creative destruction? ______________. What did Las Vegas casino owners do to deal with this type of competition? ________________________

Nothing. They joined the rush to Atlantic City.

The Production Possibilities Curve illustrates scarcity. What part of the PPC graph contains attainable and efficient production levels?

On The PPC Frontier

Soviet planners thought that value was "objective." What this essentially meant was that

Planners knew what was best for consumers.

In the abstract, planning seems so neat, orderly, and optimal. But what did planning actually mean or entail in the Soviet economy? In other words, what did the Soviets actually end up doing when it came to "planning.?"

Planning in the Soviet Union was carried out by government bureaucrats who planned what each and every soviet enterprise would produce, where it was to be delivered, and how plan compliance was to be monitored. It was a Herculean task that sought balance rather than optimality

Smith changed the orientation of economics by elevating ________ analysis over ___________ analysis.

Positive over Normative.

Consider the statement: "The Minimum wage causes unemployment to increase." Is this a positive or normative statement? _________Why?

Positive. This can be analyzed and tested. Statement of fact.

In capitalism, economic property is owned _______________________. In socialism, economic property is owned_______ In the Soviet Union, this meant that decisions about the use of economic property were made by ______________________________.

Privately, Collectively. Government Planners

What type of competition stems from sellers of substitutes?

Product Competition

Economic property is

Property that is input or factor in the economy ability to produce goods and services.

Why do economists think that a serial killer like the Son of Sam was rational?

SOS obviously had a problems with perceiving reality but his actions were rational within the reality that he perceived.

There are long-established casinos in Monaco and Macao. Are they both in the in the same market as Las Vegas casinos, or only in the same business?

Same Business.

What is the economic problem? _

Scarcity. How to make the best of scarce resources.

Adam Smith argued that people were motivated to engage in economic activity by

Self interests or greed

What is Laissez-faire based on (i.e., what are its supporting arguments)?

Smiths formula, governments did not need to be market regulators as long as there was COMPETITION.

The Great Depression affected virtually all countries around the world except one. Which country managed to escape the Great Depression?

Soviet Union

In 1928-29, the Soviet Union decided that "collective ownership" of economic property meant

State (government) ownership

n capitalism, value is viewed as being ___________________. In socialism, value is viewed as being _

Subjective, Objective

From a Production Possibilities Curve or economic development perspective, the "cost" of more capital goods production for a fully employed economy will be

The amount of consumers goods that must be given up in order to produce more capital goods.

The Soviet Union never produced very many automobiles. This was primarily due to

The determination by planners that automobiles production would consume too many valuable economic resources that could be better used to increase soviet growth, rather than providing autos to soviet consumers. Opportunity Cost.

In capitalism, workers are free to be hired or fired. The same is true of Soviet-style socialism, at least in theory. However, worker mobility in the Soviet Union was de facto (that is, in reality) limited by

The fact that there was only ONE employer in the Soviet Union.

Which of the following is true about your opportunity cost in attending this class?

The opportunity cost is measured by the lost value of what the student would have been doing if he/she did not come to class. Ex: Working, sleeping, Partying.

Which of the following is most true of economics before Adam Smith?

There was very little economic analysis and limited reference. Economics was largely confined to normative discussions.

As cartels go, how significant is OPEC? ______________________________. Why?___________________________. What did OPEC do to eliminate product competition? __________________________. Why did OPEC have such limited product competition to contend with? _

They are the worlds most successful cartels. They are responsible for the single largest transfer of wealth from one part of the world to another.

21. Why did Western economists argue that the Pet Rock had to be a good product?

They argued that no one was ever forced to buy or sell a Pet Rock so it must have made them better off.

Why didn't Mexico join OPEC? _____________________. Mexico's increase in oil output following OPEC's price increases as a good example of which type of competition?

They enjoyed the advantages of higher world oil prices created by OPEC. Competition of Capitals.

Soviet planners rejected the criteria that voluntary exchange because

They thought that planners, not people, knew what was best for the economy.

In the Theory of Voluntary Exchange, who makes the call about what has value?

Third parties such as planners, politicians, regulators know what is good for people.

Historically, slave economies have been

Trash. Common, but they have always been very derisive, very unstable, and usually slow growing and rarely developing.

Does the Theory of Voluntary Exchange justify or condone all transactions? ___________. What (if any) are the exceptions to the Theory of Voluntary Exchange?

Two parties must voluntarily agree to a transaction, then it must make each other better off. Third parties who are "injured" by the agreement. (Not physical injury). "

"Planning" can only work well if

Value is objective rather than subjective.

How would you describe the growth record of the Soviet Union over its six decades of socialism?

Very rapid in 1930's but slowed down dramatically. Collapsed in 1990's.

Throughout history, traditional economies have tended to

Very stable and good at ensuring survival but very slow growing as well.

What is the Incentives Problem encountered with Communist Distribution?

Why work and invest when there is no connection between what you contribute and what you get.

What does free labor mean? ________________________________. How do socialism and capitalism differ on this point?

Workers are free to seek work elsewhere but employers are also able to fire them. In theory, there is very little difference however, in practice, workers in Soviet Union were often restricted as to where they could work and soviet firms rarely fired workers off.