Naked Economics

What does Adam Smith say in "The Wealth of Nations" about self-interest?

Adam Smith says that self-interest makes the world go round.

Explain what market barriers are and how it keeps others from turning a certain proft.

Market barriers prevent firms or companies from entering the market. They make it diffiuclt to have a freely competitive market.

How do markets self-correct?

Markets can self-correct by lowering their prices to encourage customers to buy their products, then raising the prices to make more money.

What is "creative destruction" and how is it a tremendous force in the long-run?

"Creative destruction" is the incessant innovation mechanism by which new production replaces old ones.

What are "perverse incentives" or "the law of unintended consequences"? Provide an example.

"Perverse incentives" or "the law of unintended consequences" are inadvertent incentives that can be created when we set out to do something completely different. An example of this is airlines requiring car seats would cause families to choose to drive which is more dangereous.

What are the characteristics of a market economy?

A characteristic of a market economy is that prices adjust to supply and demand.

How does technology allow firms to use price discrimination?

A firm can change their prices based on online customer price patterns.

How would a smoker define costs?

A smoker would define costs as how much the cigarettes are, how much it is to buy a lighter, how much it is to buy stuff related to smoking, as well as their health.

Why doesn't Brad Pitt sell auto insurance? Explain and find another example from your own experience.

Brad Pitt sell auto insurance because it'd be a waste of his time and talent as an actor. That's like Emma Watson cleaning pools. It's wasteful.

What is the difference between broad, simple, and fair taxes?

Broad tax is revenue raised by imposing small taxes on a lot of people. Simple tax is easily understood and collected. Fair tax means similar individuals pay similar taxes.

Explain why business travelers will pay more than leisure travelers.

Business travelers will pay more than leisure travelers because they make more money, and their companies sometimes compensate part of the trip.

What happened to Coca Cola profits in the short run? What eventually happened and why?

Coca Cola profits dropped in the short run. Eventually they increased because of their publicity.

What is the difference between communal (public) and private property?

Communal property is shared between the community- it is public. Private propety is owned individually- it is not public.

Summarize why we embrace competition in theory but fight it in practice.

Competition means losers, which goes a long way towards explaining why we embrace it heartily in theory, but often fight it bitterly in practice.

How can economics save an endangered species?

Economics can save a species because it gives insight as to how the species can be saved. An effective strategy would be to give the locals a reason to want the animals alive. A less effective strategy would be for the park rangers to cut off the horns themselves.

What does economics study?

Economics is the study of how to maximize utility knowing that resources are scarce.

Why do fast food restaurants post signs at the register that say,"your meal is free if you don't get a receipt"?

Fast food restaurants post signs because they don't want their eployees stelaing from them.

Explain how the market economy makes lives better.

Firms/companies make money by providing the consumer something that they need or want.

Explain how individuals maximize their utility.

Individuals maximize their utility through making choices that benefit them.

What is our best hope for improving the human condition?

Our best hope for improving the human condition is to understand why we act the way we do and then plan accordingly.

Why do people kill black rhinos, sell drugs, or cheat on their taxes?

People kill black rhinos, sell drugs, or cheat on their taxes because they can make a lot of money relative to the risk of getting caught.

Explain how shopping for the best price for cigars in Cuba would not be a cost effective decision.

Shopping for the best price for cigars in Cuba would not be a cost effective decision because all the cigars cost the same.

How are taxes related to incentives? Specifically the marriage tax, corporate taxes, green taxes, and sin taxes.

Taxes provide a powerful incentive to avoid or recuse the activity that is taxes. It matters to marriage tax because it encourages the second person in the relationship to not work. Corporte tax discourages prductive investments.

How does the concept of "utility" vary among individuals?

The concept of "utility" vary among individuals because different people find different things rewarding.

What are the largest federal entitlement programs and what result do they create?

The largest federal entitlement programs are social security and Medicare. By providing guaranteed benefits in old age, both programs may discourage personal savings.

Explain how the market is amoral versus immoral. Cite 2-3 examples.

The market is amoral because the market rewards scarcity, which has no inherent relation to value. The market doesn'y provied goods that we need; it provides goods that we want to buy.

What is the most efficient tax of all? Why?

The most efficient tax of all is lump-sum tax because it is imposed uniformly on every individual in a jurisdiction.

Explain the relationship between prices and scare resources.

The prices tend to increase as the scarcity increases.

What is the principal-agent problem?

The principal-agent problem is when the principal employs an agent who has an incentive to do a lot of things that are not in the interest of the firm.

What is the "prisoner's dilemma" and how can it be applied to real-world situations?

The prisoner's dilemma is a model of human behavior. It offers insight into situations where unfetter self-interest leads to poor outcomes.

Explain why there is a plummeting birth rate in the industrialized world.

there is a plummeting birth rate in the industrialized world because having children is a lot more expensive than it was.