BUS 150 - Exam 2

Liberty

The “verbal” form of freedom

“The only freedom which deserves the name, is that of pursuing our own good in our own way, so long as we do not attempt to deprive others of theirs, or impede their efforts to obtain it.”

Liberty - John Stuart Mill

Index of economic freedom - 1

Rule of law

Index of economic freedom - 2

Government Size

Index of economic freedom - 3

Regulatory Efficiency

Index of economic freedom - 4

Open Markets

Five Essential Freedoms - Wendell Brown - 1

Freedoms to come and go

Five Essential Freedoms - Wendell Brown - 2

Equality and justice before the law

Five Essential Freedoms - Wendell Brown - 3

Security of property

Five Essential Freedoms - Wendell Brown - 4

Freedom of speech

Five Essential Freedoms - Wendell Brown - 5

Freedom of conscience

A cost or benefit that affects a party who did not choose to incur that cost or benefit

Externality

If transaction costs are low, private bargain will result in the lowest social cost

Coase Theorem

Apple farmer can’t charge for feeding bees…Government involvement necessary

Meade’s claim

Farmer (wants pollination) or beekeeper (wants site) will pay for whatever is higher value…No need for government

Cheung’s claim

More objects in space > more collisions > even more objects > everything in orbit destroyed

Kessler Syndrome - Tragedy of the Commons

Developed homes forcing elk to migrate into cattle farms > Farmers losing grass and try to prevent Elk encroachment > PERC compensate farmers instead of Gov involvement

Elk heard - Negative externality - Coase Theorem

if marginal benefit > marginal cost, do it

Economics as a model of choice

Resources moved from low value to high value

Voluntary exchange

“Vitally important fact that is often overlooked: Trade is conducted only by individuals.”

Trade - Boudreaux

Larger the market, greater the opportunities for wealth creation

Trade

Output + productivity of any group rises if each member of the group specializes

Specialization

More likely product innovation + greater division of labor

Larger Markets - Specilization

A system put in place will help facilitate and coordinate voluntary exchanges

Price system

“Promote an end which was no part of his intention” through pursuing his own interest

Invisible Hand - Adam Smith

“It is not from the benevolence of the butcher, the brewer, or the baker, that we expect dinner, but from their regard for their own self-interest”

Invisible hand/Wealth Creation - Adam Smith

What you are “asking” for

Position

Why you are asking for something

Interest

Bribes: “for a certain amount, I will let you…”

Tariff comparison

Never good from an economic standpoint

Tariff

Asian companies “dumping” washers and flushing out domestic competition > Tariff introduced to specific countries > Countries change location of production and avoid Tariff > More general tariff > Domestic jobs created at cost of 1.5 billion in price increase of washers AND dryers

Whirlpool

Trade (Uruguay) > Aid (Haiti) because trade builds permanent wealth, aid creates unforeseen consequence

Uruguay vs Haiti