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21 Cards in this Set

  • Front
  • Back
5 problems that can frustrate the optimal allocation of defense resources
1- benefits are hard to measure (how do u define defense)
2- uncertainty w/ regards to technology, budget or benefits
3- global vs. local maxima
4- reallocation prevented by administrative rules
5- incentives of organization prevent the reallocation of resources
learning curve
graphical representation stating what a company's new average costs will be if output doubles
benefits and costs of having your own DIB (defense industrial base)
1- always have ur own supply keeping you independent of relying on other countries
2- keeps you from being overcharged by countries that would have you as their customer
3- can provide economic benefit for your company
4- keeps you from losing technologies to other countries
process of increasing revenue from one customer as means of transferring that $$ to compensate for the costs of other customers
5 economic causes of civil war
1- poverty
2- economic inequality
3- greed
4- ethnic dominance
5- contest to control valuable resources
2 ways in which trade can make war more likely
1- war may be a means of protecting raw materials
2- a third party may try and start war w/ trading parties as a means of damaging them economically
difference b/t vertical income inequality & horizontal income inequality
vertical- inequality b/t rich & poor
horizontal- inequality b/t ethnic, political or religious groups
4 ways that trade may decrease the likelihood of war?
1- promotes cross-cultural learning
2- living standards would be lower w/o trade
3- compromises economic growth w/o a strong trade sector
4- trade creates a strong middle class who usually promote democracies which are reluctant to go to war
3 ways in which poverty can contribute to civil war
1- poverty can lead to failed institutions (corrupt cops)
2- disease can cripple the economy (poor health care)
3- no social welfare system to help people in distress (desperate people can do desperate things)
6 ways in which valuable resources can contribute to civil war
1- $$ from resources can provide a method of financing for rebel groups
2- if resources are concentrated in one part of the country then that part may try to break off forming its own country
3- many resources may invite neighboring countries in to steal them
4- income from resource sales can create income inequalities or tensions
5- easy $$ from resource sale can help to put off economic reforms that would make the country more stable
6- reliance on exporting goods makes a country vulnerable to export trade shocks
4 reasons that cost estimates are often wrong
1- overly optimistic
2- changes in original plans
3- unexpected inflation
4- changes in average total costs b/c of quantity changes
7 characteristics of defense production
1- emphasis on high performance weapons
2- a risk undertaken by the government
3- heavy contract regulation
4- close relations b/t contractors, military and government officials
5- military services have incentives to spend the entire budget
6- outside of US firms are state owned monopolies (puts political pressures on everyone)
7- costs are spread out w/ increased production (encourages foreign sales)
4 barriers to entry in the defense business
1- US government is the only market (or thru them)
2- demand is not likely price elastic (new low price competitors have little effect)
3- patents reduce competition
4- political considerations make it hard for new firms to enter
5 things that disarmament can mean
1- destroy stockpiles of weapons
2- reduce the number of troops in foreign countries
3- cut back on R&D
4- reductions in military expenditures
5- limitations on arms transfers
4 reasons for international arms sales
1- benefits ur economy
2- helps ur allies protect themselves
3- can further ur political goals
4- economies of scale can be achieved which can lower costs (spreading out fixed costs)
buggin's turn
rotation of the defense expenditures received b/t the four branches of military (Navy this year, Army next year)
2 problems associated w/ second source contracting
1- more firms thatre involved in the production process, the more of a burden it places on the management team (government)
2- since cooperation is necessary, will firms be willing to share proprietary info with each other?
"moral hazard" is defense contracting
the least cost isnt known to the government b/c they cant directly observe the efforts to minimize costs
adverse selection in military contracting
occurs b/c government doesn't know the firm's expected costs
the 3 types of international defense sales
1- commercial
2- FMS (foreign military assistance)
3- MAP (military assistance program)
golden arches theory
when a country can reach the economic level where they can build a McDonalds then people would rather not worry about war but rather wait in line for hamburgers