Study your flashcards anywhere!

Download the official Cram app for free >

  • Shuffle
    Toggle On
    Toggle Off
  • Alphabetize
    Toggle On
    Toggle Off
  • Front First
    Toggle On
    Toggle Off
  • Both Sides
    Toggle On
    Toggle Off
  • Read
    Toggle On
    Toggle Off
Reading...
Front

How to study your flashcards.

Right/Left arrow keys: Navigate between flashcards.right arrow keyleft arrow key

Up/Down arrow keys: Flip the card between the front and back.down keyup key

H key: Show hint (3rd side).h key

A key: Read text to speech.a key

image

Play button

image

Play button

image

Progress

1/61

Click to flip

61 Cards in this Set

  • Front
  • Back
What is an unhampered market?
All voluntary exchanges of private property
What is a voluntary exchange?
Giving up the less preferred good for the more preferred good
What is private property?
The legal treatment of the ownership and use of property
Legally, what does private property do?
Gives you the legal right to protect your claim
What is money?
A general medium of exchange
How does money facilitate exchange?
It allows an indirect exchange (don't need to have specific goods)
How is the value of money realized?
Through spending it
What is indirect exchange?
Trading indirectly through money for desired goods
Is money a producer or consumer good?
No, it's neither
What is direct exchange?
Bartering
Name five reasons money exchange is preferable to bartering.
1. More reverse preferences are satisfied
2. Expands trade
3. Extends the division of labor
4. Reduces transaction costs
5. Convenience
What did money originate as?
A commodity; a tangible good (gold, silver, etc.)
What are the preconditions that lead to the exchange of money?
1. Differences in production
2. Differences in preferences
3. Permanent sense of value exists in the market
Why can't services be a medium of exchange?
They are instantly consumed (can't be exchanged)
What preconditions must exist for money to be a commodity (medium of exchange)?
1. Must be widely/easily saleable
2. Mus thave known exchange value
3. Can't be fiat (returnable, unredeemable, paper money)
What is fiat money?
Money that has exchange value that exceeds its commodity value (ex. $20 exceeds the money spent on ink and paper to make it)
What must happen in order for people to use paper money?
They must be confident in its value
What characteristics must something have in order to be a money substitute?
1. Have a perfectly secure claim to money
2. Must be equivalent to money
3. Money must be available on demand
Fiat money only exists in markets because _____ introduce it.
Governments
Name four characteristics of a commodity
1. Portable
2. Durable
3. Divisible
4. Relative stability value
What are two types of money substitutes?
Money certificates and Fiduciary media
What is a money certificate?
Money substitute where there is an equal amount of money being held in reserve by a bank
What is fiduciary media?
Money substitute not backed by money (no money held in reserve)
In an unhampered market economy, what money substitute must be used?
Only money certificates (fiduciary media isn't consistent with private property; must engage in fraud to use)
What is a "bailment contract?"
When goods are put into storage, the receipt is the claim of the goods - ownership is not transferred
"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
"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
Because money has an objective value, what can we measure?
The differences between prices
What are economic calculations?
The procedure for economizing the division of labor (choosing highest valued ends with the least amount of labor and means)
What is the difference between a command economy and direct democracy?
Command: the dictator can't value things for everyone
Direct: we can know our own value and compare preferences
Why can't values be directly compared for different people?
Value is always in a person's mind; it's subjective
What are the three elements of gross profit?
1. entrepreneurial profit (foresight)
2. entrepreneurial wages (wages from the entrepreneur’s labor)
3. interest (earned from investing in production over time)
Describe the social meaning of profit.
If revenues > cost, then entrp. has economized

(If revenues < cost, then entrep. hasn't economized [loss])
What is incentive?
Exists outside the mind, influences a decision (profit, monetary)
What is motive?
The reason a person has for acting; subjective
Net Income equation:
(Operational decisions)
NI=R-C

(Net income = revenues - cost)
Net Worth equation:
(Capital investment decisions)
Eq=A-L

(Equity = assets - liability)
What are the three sources of net income?
1. Labor (wages)
2. Entrepreneurial investment (interest)
3. Entrepreneurial foresight (profit)
What is the capital structure?
Array of all capital goods fitte together to produce consumer goods
What is the sequence of the capital structure?
Capital goods - primitive capital goods - sophisticated goods - consumer goods
What is specifity?
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)
Name three features of the capital structure.
1. Complexity
2. Flexibility
3. Coordinated
What are the three sources of net income?
1. Labor (wages)
2. Entrepreneurial investment (interest)
3. Entrepreneurial foresight (profit)
What is the capital structure?
Array of all capital goods fitte together to produce consumer goods
What is the sequence of the capital structure?
Capital goods - primitive capital goods - sophisticated goods - consumer goods
What is specifity?
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)
Name three features of the capital structure.
1. Complexity
2. Flexibility
3. Coordinated
In reference to the capital structure, discuss complexity.
1. Huge number of goods produced
2. Entrep. work together to give each other incentives
In reference to the capital structure, discuss flexibility.
1. Can change
2. All relationships are voluntary and mutually beneficial
3. Must be profitable to change
In reference to the capital structure, discuss coordination.
1. Production processes harmonized with demand in order to produce profit
2. Cooperation (vol. exchange and mutual benefit)
3. Competition (exists between like participants)
What is the time market?
Exchanging present money for future money
How do we economize time in the time market?
We prioritize our actions with respect to time
What is time preference?
Satisfying an end sooner as opposed to later
What is the difference between future money and present money?
The interest rate
What is economizing in the time market?
1. There's more value in the future than now
2. Just allocating a means
Define economic time.
Different values are placed on the smae action at different times
Define pure interest rate.
Rate of interest based soley on time preference (the premium a person places on the present)
Where does an interest rate exist?
Anywhere present money is exchanged for future money
Define the market rate of interest.
Demand: higher time preference (borrowers)
Supply: lower time preference (lenders)
What are the two subdivisions of the time market?
1. Capital structure
2. Credit market
Define the credit market.
Market where the contract isn't fulfilled until the future