WOB mod 1

centralized planning

economic system where govt/individual makes all decisions about a market (cannot contain all knowledge)

author: hayek
argument: rejects centralized planning as a workable model for making economic decisions and allocating scarce resources. Will not work because of the delay problem: rapidly changing conditions and the need for adjustment

market economy

an economic system in which individuals and businesses make decisions about production, buying, and selling, with prices helping coordinate those decisions

author: hayek
argument: markets allow people with different pieces of knowledge to coordinate without a central planner directing every decision. A market economy relies on decentralized decisions, while centralized planning relies on a central authority. Markets coordinate dispersed knowledge

knowledge problem

the difficulty of gathering and using all the information necessary to allocate scarce resources efficiently

author: hayek
argument: the knowledge problem makes centralized economic planning unreliable because knowledge is dispersed and constantly changing. The knowledge problem is the reason Hayek favors decentralized markets over centralized planning.

scientific knowledge

General, systematic knowledge that can be studied or established through scientific methods. This contrasts with the specific, practical knowledge people gain from experience

author: hayek
argument: economic coordination cannot rely on scientific knowledge. It also requires the practical, local knowledge held by individuals. Knowing general economic principles is not the same as knowing the immediate needs of every person and business.

decentralized knowledge

knowledge that is spread among different people rather than held by one person

author: hayek
argument: an economy works better when people can use their own knowledge to make decisions and coordinate through the market. No single person needs to know everything if people can communicate

price signal

A change in price communicates information about changing supply, demand, or scarcity, and encourages people to adjust their behavior. The piece of info communicated in price system

author: hayek
argument: price signals allow individuals to respond to information they may not otherwise possess. Higher prices for a product can encourage businesses to produce more of it, while consumers may reduce their purchases.

delay problem

the delay that occurs when a centralized authority tries to gather information, make a decision, and implement it while economic conditions continue to change

author: hayek
argument: centralized planning struggles to respond quickly to changing local circumstances. By the time a govt decided how much emergency water to send to a community, the community's needs may have changed.

price system

the way prices communicate information about scarcity, demand, and the relative value of resources, helping people make economic decisions. Prices = communication

author: hayek
argument: prices communicate information without requiring everyone to know the reason behind the change. Prices help consumers adjust purchases and producers decide what to supply

competitive capitalism

An economic system in which privately owned businesses compete to attract customers, earn profits, and remain successful.

author: Cox
argument: competition for profit pressures businesses to cut costs, can put a downward pressure of wages, and can encourage production that serves profitable wants rather than essential human needs. Capitalist incentives can create harmful outcomes

trade cycle

the recurring pattern of economic expansion and contradiction, including periods of increased production followed by falling demand, layoffs, and recession

author: Cox
argument: capitalist competition can create an unstable cycle. A surge in demand may encourage overproduction; when prices fall, businesses cut jobs, workers have less income, and demand for other goods fall too. Sees trade cycle as an inefficient and unjust way for the economy to adjust.

wage suppression

pressure that keeps workers wages low or prevents wages from rising as much as they otherwise might

author: Cox
argument: competition and the profit motive encourage businesses to reduce costs, including labor costs. That can put a downward pressure on wages while businesses seek to preserve or increase profits

artificial need

A want that is encouraged or created by consumer culture rather than being a basic human necessity

author: Cox
argument: competitive capitalism encourages people to pursue more possesions and status, creating wants that can feel endless. About what people are encouraged to want. Scarcity is about why peoples needs may remain unmet despite available resources.

artificial scarcity

Scarcity that exists or continues partly because of the way resources are organized, distributed, or produced, rather than simply because there are not enough resources to meet people’s needs

author: Cox
argument: capitalism can maintain scarcity because businesses produce for profit instead of prioritizing what people need. Society may have the resources to address a problem but fail to use them in ways that meet those needs. Ex. Affordable housing

property rights

rights that establish who controls a resource, who can use it, who can benefit from it, and who can transfer or exchange it. They generally include the ability to exclude others from using ones property

author: Alchian
argument: clearly defined property rights give people incentives to care for resources, invest, create value, and exchange property peacefully. Pro-property rights

author:
argument:

normative stakeholder theory

an approach to business ethics that considers the moral obligations a business has to its stakeholders, rather than evaluating decisions only by how much profit they produce

argument: identify a stakeholder, explain how the decision affects them, and explain the moral obligation involved.