Final Review for Midterm 1

• Specie-flow mechanism: thought that importing goods meant transferring your gold
• Problem with collectivist society
• no way central planners can know what everyone wants: no tacit knowledge
• no specialization which leads to an information problem
• Competition
• to get best employees, wages will eventually have to rise
• Hume's negative effects of restrictive trading policies
• loss of competition
• loss of innovation
• loss of division of labor
• Emergent Order
• everything is created from human action not human design
• 'spontaneous order'; no central planner
• Knowledge Issue
• no one person can know what people want or need
• Living Standards Better Today
• Big Variety of Goods in account to provide Substitutes
• Services are what matter not the goods obtaining them
• Quality of goods have increased
• Illumination example: candles about same cost but you can get a greater amount of light at a cheaper cost
• Feedback Loop
• businesses have an incentive to make consumers happy so they in turn will have an incentive to come back
• Who designed modern market system? 
• No One; there have never been any central planners
• Schumpeter and Marx's view of Capitalism's achievements
• more products available at a cheaper price
• Zero Sum
• your gain is my loss, your loss is my gain (a gain at someone's expense)
• Opportunity Cost
• net benefit of the next best thing that you forego for what you chose
• Broken Window Fallacy
• hurricanes can boost the economy through stimulating jobs
• these jobs are merely allocated to something that was already there rather than constructing something else
• Costs
• consumes resources
• genuine = marginal- changes after decision is made
• sunk- cannot be recovered