BCOR 1015 Midterm Exam Review with Complete Solutions

Hayek's argument - ANSWER-He asserts that a centrally planned economy could never match the efficiency of the open market because what is known by a single agent is only a small fraction of the sum total of knowledge held by all members of society. A decentralized economy thus complements the dispersed nature of information spread throughout society. 3 main point of Hayek - ANSWER-Information is needed for rational economic order Information is decentralized dispersed knowledge Price mechanism works best Post Scarcity World, Aguilar - Millan - ANSWER-is an economic theory in which most goods can be produced in great abundance with minimal human labor needed, so that they become available to all very cheaply or even freely. One of the main traces of the scarcity periods is the increase and fluctuation of prices. To deal with that situation, technology advancements come into play, driving an efficient use of resources to a certain extent that costs will be considerably reduced (almost everything will be free). Artificial Scarcity, Cox - ANSWER-desire for things that are not necessary, people use these "things" to show off class and status, which promotes the production of goods that are not necessary shifting labor away from more useful goods and contributes to scarcity in capitalistic models (Robin Cox's idea) Our miserable 21st Century, Eberstadt - ANSWER-"Thus the bittersweet reality for real Americans in the early 21st century: Even though the American economy remains the world's unrivaled engine of wealth generation, those outside the bubble may have less of a shot at the American Dream than has been the case for decades, maybe generations - possibly ever since the Great Depression" ( drug abuse, incarceration, less stable families, health levels not increasing as predicted, wealth increasing but not equally) Free cash for everyone? - ANSWER-UBI is free money with no restrictions and no conditions Some believe that people would be worse off; less emotionally healthy and socially stable Others believe that people are resourceful, intelligent and hardworking night to benefit from UBI Finland had second thoughts about giving money to jobless people, Goodman - ANSWER-Wanted to try it out to see if people really would spend more time with their families or go back to school, but They are adopting new rules that require benefit recipients are looking for work or are in job training programs Market economy - ANSWER-choices decided by economic actors - people and organizations - within the market Using prices Privates users capitalsims - people's willingness to pay Profit incentive Competition / cooperation Markets maximize social welfare Centrally planned economy - ANSWER-choices decided by the state Operated by governments Planning both production and allocation Mixed economy - ANSWER-a combination on market and centrally planned economy Combination of markets and government regulation and guidance E.g. national defense Utilities Consumer protection ( monopolies) Federal Reserve ( interest rates) Incentives (taxes / subsidies) Property Rights guidelines - ANSWER-Needs to be well defined transferability - can you transfer this right to someone else? Enforceability Privare Goods - ANSWER-something that everyone can have, but you must 'pay from it" Rival and Excludable Common Resources - ANSWER-is a resource, such as water or pasture, that provides users with tangible benefitsRival and Non-excludable Natural Monopoly - ANSWER-when market can control the supply or price of something non- rivial excludable Public Good - ANSWER-everyone can use it and you can't control it (air, nation defense) excludable non -rival Why not socialism?, Cohen - ANSWER-camping trip and everyone acts like socialist but eventually turn into capitalist, The principle of socialist equality of opportunity eliminates all inequalities resulting from undeserved disadvantages or advantage,Cohen then argues that large-scale societies would be morally better if they were socialist. If we could figure out how to make societies run like the socialist camping trip, we would rejoice, We tolerate capitalism only because we think we must. He say socialism is desirable but is not sure if it is feasible Cohen's Three "Equalities of Opportunity" - ANSWER-"Bourgeois equality of opportunity" Removal of socially constructed statues restrictions (formal and informal) "Left- liberal equality of opportunity" - ANSWER-Removal of the disadvantages of circumstances, even if not socually contrused (but leaves differences in opportunities related to "native or inborn" traits) "Socialist equality of opportunity" - ANSWER-Seeks to correct for all unchosen disadvantages, disadvantages, that is, for which the agent cannot herself reasonably be held responsible, where they be disadvantages that reflect social misfortune or disadvantages that reflect natural misfortune Two principles underlying the camping trip - ANSWER-Egalitarian principles → socialist equality of opportunity Community Principle → socialist focus on community Capitalism and freedom, Friedman - ANSWER-Friedman examines the progressive income tax, introduced in order to redistribute income to make things more fair, and finds that, in fact, the rich take advantage of numerous loopholes, nullifying the redistributive effects. It would be far more effective just to have a uniform flat tax with no deductions, which could meet the 1962 tax revenues with a rate only slightly greater than the lowest tax bracket at that time. Friedman: Preferences Lead to Inequality - ANSWER-Differences resulting from preferences are ethically acceptable Differences in pay are "equalizing differences" that offset undesirable qualities of the job. By trading work preferences for money people can create optimal arrangements that improve their life satisfaction. Pay differences create equality, when equality is understood broadly. People should not be constrained from making these choices. If people want to take on unpleasant tasks at greater pay, then so much the better for society Friedman: Luck Leads to Inequality - ANSWER-It is okay to earn money from risk-taking. Here is why Friedman questions socialism: - ANSWER-First, luck is an equalizing differences. Some people would prefer the risk in order to earn more money. Second, risk-taking is essential to our economy (e.g., new ventures, wildcatting). If we take away the incentives then we will have less of it. Friedman: Personal Endowments Leads to Inequality - ANSWER-Most people see this as "merit," and do not find it inequitable. Most of his argument is only to show that inherited talent is no different in principle than inherited wealth. However, he does provide an objection to redistribution. If someone has extra money, then other people (or the state) must use coercion to redistribute the mone Friedman: Inheritance Leads to Inequality - ANSWER-Inheritance is okay: People can pass their wealth along in different ways, why should some be acceptable and others not? Besides, if you earn the money you should have a right to pass it along to your children. Harrison Bergeron, Vonnegut - ANSWER-fictional story about all humans being equal due to "handicaps" set forth by the government. people are born different; we should not force them to be the same. Policies that are intended to make everyone equal make us all worse off. We are going to the lowest common denominator if we demand equality of outcomes The Overpaid CEO, Holmberg and Schmitt - ANSWER-CEOs should we rewarded for productivity and performance but it should be measured in terms that reflect the interests of all the stakeholders in a corporation CEO pay not fair Incentives are not aligned It's just a function of option luck, doesn't reflect merritt. They are not being paid for the performance. CEO pay, Kaplan - ANSWER-Ceo pay tracks performance, the best performing companies tend to pay their CEO's more for their performance Tracks risk, what kind of risks CEOs take Opportunity cost of the individuals Fair/ Fairness - ANSWER-Agreeing with what is thought to be right or acceptable Treating people in a way that does not favor some over others Equity - ANSWER-Fairness or justice in the way people are treated Justice according to natural law or right Freedom from bias or favoritism Equality - ANSWER-The quality or state of being equal The quality or state of having the same rights, social status, etc The Tragedy of the Commons, Hardin - ANSWER-Anything that is held in commons, not owned by anyone, and no one has the authority to legislate who uses it, it is likely to be over used unintentionally, but because people are incentivized to use it