Phase 1: High-Yield Essay Cheat-Sheet

Institutions (North)

humanly devised constraints that shape interaction including formal rules, informal constraints, and their enforcement characteristics, as illustrated by how rules govern football or how divergent institutions explain the economic differences between North and South Korea

Robbins' Definition of Economics

the science which studies human behavior as a relationship between ends and scarce means which have alternative uses

Buchanan's Focus of Economics

catallactics or symbiotics, focusing on the science of exchange and how individuals coordinate through trade rather than an engineering or resource allocation problem

Causes of the Division of Labor (Smith)

the slow consequence of the human propensity to truck, barter, and exchange, which increases output via worker dexterity, time saved between tasks, and machine invention

Smith's Woolen Coat and "I, Pencil"

demonstrations that even ordinary manufactured items require the cooperation of countless individuals, none of whom possess the total knowledge required to create them from scratch

Formal vs. Informal Constraints (North)

formal constraints are codified rules such as laws and constitutions, whereas informal constraints are unwritten norms, customs, and codes of conduct

Demsetz's Property Rights Emergence (Labrador vs. Plains)

property rights develop when the gains of internalizing externalities exceed the costs of establishing them, which occurred with non-migratory beavers in Labrador after the fur trade developed but failed to happen with migratory plains buffalo

The Coase Theorem and Transaction Costs

with zero transaction costs parties negotiate to the efficient allocation of resources regardless of legal liability, but with positive transaction costs the initial legal assignment of rights directly determines the final outcome

Coase's Lighthouse Findings

historical evidence showing British lighthouses were privately financed by collecting light dues at ports rather than purely by state funds, illustrating that institutions can evolve to lower transaction costs for alleged market failures

Hayek's Economic Problem and the Tin Example

the problem of rapidly coordinating dispersed and unorganized knowledge of time and place, solved by the price system communicating relative scarcity without requiring individuals to understand the underlying cause

Schumpeter vs. Kirzner on Entrepreneurship

Schumpeter views the entrepreneur as a disruptive force breaking equilibrium through creative destruction, whereas Kirzner views the entrepreneur as an alert arbitrageur moving markets toward equilibrium

Baumol's Entrepreneurship Theory

the hypothesis that total entrepreneurial supply remains relatively constant while institutional rules determine the allocation of talent among productive, unproductive (rent-seeking), and destructive (piracy) activities

The Nirvana Approach and Demsetz's Alternative

the fallacy of contrasting real-world institutional imperfections with an ideal or frictionless norm, which should be replaced by a comparative institutions approach analyzing feasible, costed alternatives