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61 Cards in this Set
- Front
- Back
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What is an unhampered market?
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All voluntary exchanges of private property
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What is a voluntary exchange?
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Giving up the less preferred good for the more preferred good
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What is private property?
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The legal treatment of the ownership and use of property
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Legally, what does private property do?
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Gives you the legal right to protect your claim
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What is money?
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A general medium of exchange
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How does money facilitate exchange?
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It allows an indirect exchange (don't need to have specific goods)
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How is the value of money realized?
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Through spending it
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What is indirect exchange?
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Trading indirectly through money for desired goods
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Is money a producer or consumer good?
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No, it's neither
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What is direct exchange?
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Bartering
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Name five reasons money exchange is preferable to bartering.
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1. More reverse preferences are satisfied
2. Expands trade 3. Extends the division of labor 4. Reduces transaction costs 5. Convenience |
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What did money originate as?
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A commodity; a tangible good (gold, silver, etc.)
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What are the preconditions that lead to the exchange of money?
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1. Differences in production
2. Differences in preferences 3. Permanent sense of value exists in the market |
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Why can't services be a medium of exchange?
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They are instantly consumed (can't be exchanged)
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What preconditions must exist for money to be a commodity (medium of exchange)?
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1. Must be widely/easily saleable
2. Mus thave known exchange value 3. Can't be fiat (returnable, unredeemable, paper money) |
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What is fiat money?
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Money that has exchange value that exceeds its commodity value (ex. $20 exceeds the money spent on ink and paper to make it)
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What must happen in order for people to use paper money?
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They must be confident in its value
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What characteristics must something have in order to be a money substitute?
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1. Have a perfectly secure claim to money
2. Must be equivalent to money 3. Money must be available on demand |
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Fiat money only exists in markets because _____ introduce it.
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Governments
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Name four characteristics of a commodity
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1. Portable
2. Durable 3. Divisible 4. Relative stability value |
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What are two types of money substitutes?
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Money certificates and Fiduciary media
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What is a money certificate?
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Money substitute where there is an equal amount of money being held in reserve by a bank
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What is fiduciary media?
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Money substitute not backed by money (no money held in reserve)
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In an unhampered market economy, what money substitute must be used?
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Only money certificates (fiduciary media isn't consistent with private property; must engage in fraud to use)
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What is a "bailment contract?"
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When goods are put into storage, the receipt is the claim of the goods - ownership is not transferred
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"Money is a common unit of objective value."
Explain the meaning of 'common' in the statement above. |
Common: there are exchange ratios for every product in regards to money
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"Money is a common unit of objective value."
Explain the meaning of 'objective' in the statement above. |
Objective: many people can agree about a particular object; allows for mathematical computations
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Because money has an objective value, what can we measure?
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The differences between prices
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What are economic calculations?
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The procedure for economizing the division of labor (choosing highest valued ends with the least amount of labor and means)
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What is the difference between a command economy and direct democracy?
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Command: the dictator can't value things for everyone
Direct: we can know our own value and compare preferences |
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Why can't values be directly compared for different people?
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Value is always in a person's mind; it's subjective
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What are the three elements of gross profit?
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1. entrepreneurial profit (foresight)
2. entrepreneurial wages (wages from the entrepreneur’s labor) 3. interest (earned from investing in production over time) |
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Describe the social meaning of profit.
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If revenues > cost, then entrp. has economized
(If revenues < cost, then entrep. hasn't economized [loss]) |
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What is incentive?
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Exists outside the mind, influences a decision (profit, monetary)
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What is motive?
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The reason a person has for acting; subjective
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Net Income equation:
(Operational decisions) |
NI=R-C
(Net income = revenues - cost) |
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Net Worth equation:
(Capital investment decisions) |
Eq=A-L
(Equity = assets - liability) |
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What are the three sources of net income?
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1. Labor (wages)
2. Entrepreneurial investment (interest) 3. Entrepreneurial foresight (profit) |
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What is the capital structure?
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Array of all capital goods fitte together to produce consumer goods
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What is the sequence of the capital structure?
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Capital goods - primitive capital goods - sophisticated goods - consumer goods
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What is specifity?
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The deree of value is specific to one or ore uses (usually less specific in earliers stages of production and more specific in later ones)
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Name three features of the capital structure.
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1. Complexity
2. Flexibility 3. Coordinated |
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What are the three sources of net income?
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1. Labor (wages)
2. Entrepreneurial investment (interest) 3. Entrepreneurial foresight (profit) |
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What is the capital structure?
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Array of all capital goods fitte together to produce consumer goods
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What is the sequence of the capital structure?
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Capital goods - primitive capital goods - sophisticated goods - consumer goods
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What is specifity?
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The deree of value is specific to one or ore uses (usually less specific in earliers stages of production and more specific in later ones)
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Name three features of the capital structure.
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1. Complexity
2. Flexibility 3. Coordinated |
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In reference to the capital structure, discuss complexity.
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1. Huge number of goods produced
2. Entrep. work together to give each other incentives |
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In reference to the capital structure, discuss flexibility.
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1. Can change
2. All relationships are voluntary and mutually beneficial 3. Must be profitable to change |
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In reference to the capital structure, discuss coordination.
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1. Production processes harmonized with demand in order to produce profit
2. Cooperation (vol. exchange and mutual benefit) 3. Competition (exists between like participants) |
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What is the time market?
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Exchanging present money for future money
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How do we economize time in the time market?
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We prioritize our actions with respect to time
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What is time preference?
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Satisfying an end sooner as opposed to later
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What is the difference between future money and present money?
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The interest rate
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What is economizing in the time market?
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1. There's more value in the future than now
2. Just allocating a means |
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Define economic time.
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Different values are placed on the smae action at different times
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Define pure interest rate.
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Rate of interest based soley on time preference (the premium a person places on the present)
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Where does an interest rate exist?
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Anywhere present money is exchanged for future money
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Define the market rate of interest.
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Demand: higher time preference (borrowers)
Supply: lower time preference (lenders) |
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What are the two subdivisions of the time market?
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1. Capital structure
2. Credit market |
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Define the credit market.
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Market where the contract isn't fulfilled until the future
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