History of Economic Ideas Quiz
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Questions and Answers

What concept did John Stuart Mill introduce to differentiate types of pleasures?

  • Capabilities approach
  • Diminishing marginal utility
  • Veil of ignorance
  • Higher vs. lower pleasures (correct)

Which of the following best describes Amartya Sen's main critique of traditional utility theory?

  • It neglects human dignity and freedoms. (correct)
  • It fails to discuss the veil of ignorance.
  • It focuses too much on societal roles.
  • It overly simplifies individual choices.

What does the Liberty Principle proposed by John Rawls advocate for?

  • Maximizing total income in society.
  • Equal basic rights for all individuals. (correct)
  • Social inequalities should be eliminated.
  • Complete freedom of trade.

In behavioral economics, which game exemplifies people's preference for fairness over monetary gain?

<p>Ultimatum Game (B)</p> Signup and view all the answers

Which of the following describes the capabilities approach introduced by Amartya Sen?

<p>Measurement of quality of life by opportunities and freedoms. (D)</p> Signup and view all the answers

What is a characteristic of open-access property as defined in property rights?

<p>There are no restrictions on usage. (D)</p> Signup and view all the answers

Which philosopher is known for the pleasure-pain calculus?

<p>Jeremy Bentham (C)</p> Signup and view all the answers

Which principle of justice proposed by John Rawls allows for social inequalities?

<p>Justice Principle (A)</p> Signup and view all the answers

What was Plato's perspective on property in Ancient Greece?

<p>Common property should be managed to ensure social cohesion. (D)</p> Signup and view all the answers

According to Aristotle, what are the benefits of private property?

<p>It offers personal satisfaction and opportunities for philanthropy. (B)</p> Signup and view all the answers

Which of the following thinkers viewed property as a social construct arising from state authority?

<p>Thomas Hobbes (A)</p> Signup and view all the answers

What economic concept did Karl Marx criticize regarding private property?

<p>It is a means for class exploitation. (B)</p> Signup and view all the answers

What role do property rights play in economic development?

<p>They secure investments and connect work efforts to rewards. (D)</p> Signup and view all the answers

What did John Stuart Mill believe about private property?

<p>It is justified only if it benefits the majority. (B)</p> Signup and view all the answers

What challenge is associated with weak property rights in developing countries?

<p>Access to credit is hindered. (D)</p> Signup and view all the answers

What was a significant contribution of Friedrich Hayek and Milton Friedman regarding property rights?

<p>They supported private property as a means for freedom. (B)</p> Signup and view all the answers

What primarily influences price in the short run?

<p>Demand fluctuations (A)</p> Signup and view all the answers

According to classical economists, what determines the natural price?

<p>Production costs (C)</p> Signup and view all the answers

During which historical period did John Calvin influence the perception of usury?

<p>The Commercial Age (B)</p> Signup and view all the answers

What is a main function of money as it evolved from the barter system?

<p>To provide a measure of value (D)</p> Signup and view all the answers

Which economist stressed the integration of supply-demand equilibrium?

<p>John Stuart Mill (B)</p> Signup and view all the answers

What concept unifies use value and exchange value according to marginalist economists?

<p>Marginal utility (C)</p> Signup and view all the answers

Why were usury practices viewed negatively in ancient laws?

<p>They were seen as morally unacceptable (B)</p> Signup and view all the answers

What did classical economists believe about interest rates?

<p>They should be capped to prevent speculation (D)</p> Signup and view all the answers

What did Jean-Baptiste Say emphasize regarding taxation?

<p>Avoiding high taxes to encourage capital formation (B)</p> Signup and view all the answers

What is a key argument against progressive taxes as articulated by John Stuart Mill?

<p>They discourage productivity and investment (A)</p> Signup and view all the answers

According to the Keynesian approach, what is seen as a method to stimulate economic activity?

<p>Deficit spending during downturns (C)</p> Signup and view all the answers

Which taxation model promotes simplicity and neutrality as advocated by Friedrich Hayek and Milton Friedman?

<p>Flat Tax (A)</p> Signup and view all the answers

What did Friedman propose as a direct welfare mechanism for low-income individuals?

<p>Negative Income Tax (A)</p> Signup and view all the answers

What is the term coined by Richard Cantillon to describe the unequal effects of new money injections in the economy?

<p>Cantillon Effects (A)</p> Signup and view all the answers

What is generally defined as a recession in economic terms?

<p>An extended decline in real GDP over two consecutive quarters (A)</p> Signup and view all the answers

Which theory explains the misalignment of voter incentives and government policies due to rational ignorance?

<p>Public Choice Theory (C)</p> Signup and view all the answers

What is the primary argument of Keynesian Economics against Say's Law?

<p>Economies can experience sustained periods of recession. (D)</p> Signup and view all the answers

According to Austrian Business Cycle Theory, what is a major consequence of artificial interest rate manipulation?

<p>Unsustainable investments. (B)</p> Signup and view all the answers

What concept introduced by Keynesian Economics explains the potential for government intervention in the economy?

<p>Effective demand (B)</p> Signup and view all the answers

What does the IS-LM model primarily analyze?

<p>Investment-saving and liquidity-money markets. (D)</p> Signup and view all the answers

What was a critique of Say's Law proposed by Thomas Malthus?

<p>Imbalances in production can lead to 'general gluts'. (D)</p> Signup and view all the answers

What did David Hume emphasize regarding money supply and economic activity?

<p>Changes in money supply can affect production temporarily. (B)</p> Signup and view all the answers

What aspect of market behavior do New Classical Economics emphasize?

<p>Rational expectations and market adjustments. (A)</p> Signup and view all the answers

What do New Keynesian Economics attribute as barriers to market self-correction?

<p>Menu costs and wage stickiness. (C)</p> Signup and view all the answers

What did the 'providentialist' theory suggest about the distribution of resources?

<p>God distributed resources unevenly to promote commerce. (D)</p> Signup and view all the answers

What is one criticism of the mercantilist trade doctrine?

<p>It disregards the effects of the price-specie flow mechanism. (D)</p> Signup and view all the answers

According to Adam Smith, countries can benefit from trade through which concept?

<p>Producing goods that can be made at the lowest real cost. (C)</p> Signup and view all the answers

The Heckscher-Ohlin model explains comparative advantage based on what factor?

<p>The availability of capital and labor resources. (B)</p> Signup and view all the answers

What does the Stolper-Samuelson theorem predict about free trade?

<p>It may cause a political backlash from scarce factors. (D)</p> Signup and view all the answers

In New Trade Theory, what is emphasized as a reason for intra-industry trade?

<p>Consumer preference for variety and economies of scale. (C)</p> Signup and view all the answers

David Ricardo's comparative advantage suggests that countries can benefit from trade by specializing in what?

<p>Goods where they have the lowest opportunity costs. (D)</p> Signup and view all the answers

What significant economic change did South Korea undergo according to New Trade Theory?

<p>A transition from agricultural economy to industrial leadership. (A)</p> Signup and view all the answers

Flashcards

Private Property

Ownership of resources by individuals, not the government.

Plato's View on Property

Plato supported shared property among rulers for social harmony, limiting private property to prevent inequality.

Aristotle's View on Property

Aristotle advocated for private property for motivating productivity, personal satisfaction, & philanthropy.

Locke's Labor Theory of Property

John Locke believed property arises from the effort put into resources (natural resources).

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Smith's View on Property

Adam Smith believed labor is the fundamental source of property rights, crucial for economic growth

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Marx's Critique of Private Property

Karl Marx argued private property creates class exploitation and proposed collective ownership.

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Property Rights & Economic Growth

Strong property rights incentivize work, investment, and efficiency, promoting economic growth.

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Tragedy of the Commons

Weak property rights can lead to overuse and depletion of shared resources.

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Diminishing Marginal Utility

The additional satisfaction from consuming one more unit of a good decreases as consumption rises.

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Capabilities Approach

A view of well-being that emphasizes individuals' opportunities and freedoms to achieve well-being rather than just utility or money.

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Veil of Ignorance

A thought experiment where people make decisions about justice without knowing their own social position, wealth, or status.

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Common Property

Property shared by a group with collective decision-making rights.

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Open-Access Property

Property without restrictions on use, like air or oceans.

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Utilitarianism (John Stuart Mill)

Focus on maximizing happiness as the ultimate goal of actions, emphasizing qualitative differences in pleasures.

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Property Rights

Bundles of rights defining legal ownership and transfer of assets.

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Short-Run Supply Elasticity

Supply is less responsive to price changes in the short run, meaning producers have limited ability to adjust production, thus affecting price more significantly.

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Long-Run Supply Elasticity

Supply is more elastic in the long run, allowing producers to adjust production levels more fully in response to price changes, thus influencing price significantly.

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Market Period

The shortest time period in economic analysis, where supply is fixed and cannot be adjusted, leaving price entirely dependent on demand.

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Short Run

A time period where at least one input is fixed, while others can be varied. Producers can adjust production partially, but face constraints.

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Long Run

A time period where all factors of production are variable, allowing for complete adjustment to supply and demand changes.

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Classical Economists on Interest

Classical economists, like Adam Smith, favored capped interest rates to encourage investment but prevent excessive speculation and risks.

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Functions of Money

Money serves as a medium of exchange, a measure of value, and a store of value, facilitating transactions, comparing prices, and holding purchasing power.

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Usury

Historically, usury referred to the practice of lending money at excessive interest rates, often viewed as ethically wrong.

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Say's View on Taxes

Jean-Baptiste Say believed that excessive taxes should be avoided to encourage capital formation, as they can hinder investment and economic growth.

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Ricardo's View on Taxes

David Ricardo advocated for minimal taxes to reduce distortions in the economy. He specifically suggested land taxes should fall primarily on landowners to minimize harm to broader economic activity.

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Mill's View on Progressive Taxes

John Stuart Mill opposed progressive taxes on income but supported taxing unearned wealth like inheritances, advocating for a more equitable system.

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Keynesian Approach to Government Spending

The Keynesian approach favors deficit spending during economic downturns to stimulate demand and economic activity. It advocates for public borrowing to counter recessions but opposes perpetual debt.

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Optimal Taxation

Optimal Taxation theory aims to balance equity and efficiency by taxing inelastic goods more heavily to minimize economic distortions, acknowledging differences in taxpayer abilities.

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Flat Tax

A flat tax system is characterized by a single tax rate applied to all income levels, advocated for its simplicity and neutrality.

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Negative Income Tax

A negative income tax proposes direct welfare payments to low-income individuals, essentially a tax refund or transfer.

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Consumption Taxes

Consumption taxes, like sales taxes, focus on spending rather than income, often preferred for their efficiency and fairness.

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Providentialist Theory of Trade

A theory that God intentionally distributed resources unevenly so countries would trade and interact, promoting commerce.

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Mercantilist Trade Doctrine

A trade philosophy that emphasizes accumulating wealth through a trade surplus, prioritizing exports over imports.

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Hume's Price-Specie Flow Mechanism

A theory explaining how trade surpluses can lead to inflation, negating real wealth gains through increased money supply and prices.

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Absolute Advantage

A country has an absolute advantage when it can produce a good at a lower real cost than another country.

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Comparative Advantage

Even if a country doesn't have an absolute advantage, it can benefit from trade by specializing in the production of goods with the lowest opportunity cost.

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Heckscher-Ohlin (H-O) Model

A model explaining comparative advantage based on a country's abundance of factors of production (capital and labor).

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Stolper-Samuelson Theorem

Trade benefits factors of production that a country has in abundance while harming those that are scarce.

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Dynamic Comparative Advantage

A changing comparative advantage over time due to technological advancements and learning.

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Say's Law

The idea that in the long run, economies are self-adjusting and there's no possibility of lasting recessions because supply creates its own demand.

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Keynesian Economics

A school of thought that rejects Say's Law and argues that economies can experience prolonged recessions due to insufficient demand.

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IS-LM Model

A model that illustrates the interaction of the goods market (investment-saving) and the money market (liquidity-money), demonstrating the influence of monetary and fiscal policies on the economy.

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Austrian Business Cycle Theory

This theory criticizes government intervention in the economy, especially manipulation of interest rates, arguing that such intervention leads to unsustainable investments and economic booms followed by busts.

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Monetarism

A school of thought that emphasizes the importance of stable money supply to prevent economic instability and recessions.

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New Classical Economics

This theory emphasizes the role of rational expectations and price flexibility in market adjustments. It believes that recessions are primarily caused by unforeseen shocks to the economy, like changes in technology or consumer preferences.

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New Keynesian Economics

A school of thought that acknowledges price and wage stickiness as obstacles to market self-correction and explains how these rigidities can contribute to recessions.

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Asset Bubbles

Periods of excessive speculation and price increases in asset markets, leading to subsequent crashes and economic downturns.

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Study Notes

History of Economic Ideas

  • Monopolistic competition is a concept emphasizing non-price competition and product differentiation to gain market power. Edward Chamberlain and Joan Robinson developed this idea.
  • Keynesian Revolution introduced macroeconomic theory during the Great Depression. John Maynard Keynes argued that insufficient aggregate demand causes high unemployment. He advocated for government intervention.
  • The Monetarist Counterrevolution, led by Milton Friedman, challenged Keynesian economics. Friedman proposed the permanent income theory and asserted that money supply directly impacts price levels.
  • The Marginalist Revolution of the late 19th century saw marginal utility as the basis for value, shifting focus from labor. Key figures include William Stanley Jevons, Carl Menger, and Léon Walras.
  • Classical Economics, pioneered by Adam Smith, highlights the division of labor and self-interest as drivers of economic growth. Ricardo and Malthus extended these concepts, especially comparative advantage and population dynamics.
  • Behavioral economics and experimental economics examine psychological factors impacting decision-making. Experimental economics tests economic theories.
  • Non-European thinkers, like Confucius and al-Ghazâlî, made significant contributions to economic thought.
  • Mercantilism emphasized national wealth through trade balance. Physiocrats promoted laissez-faire policies, recognizing that agriculture is a source of wealth.

Ethical Foundations of Economics

  • Ethical dimensions exist in economic decision-making regarding scarce resources.
  • Ethical questions are central to market interactions, influencing theories from ancient philosophers to modern economists. Ancient economic thought focused on virtues like justice and moderation.

Property Rights

  • Property rights define legal ownership and transfer of assets.
  • Private property is owned by individuals or entities with exclusion rights.
  • Common property is shared by a group with collective decision-making.
  • Public property is managed by governments for public use.
  • Historical evolution of property rights traces concepts through ancient Greece, the Middle Ages, and Enlightenment thinkers.
  • Key figures in the evolution of these ideas include Plato, Aristotle, Thomas Aquinas, and Thomas Hobbes

Price Theory

  • Modern price theory focuses on market value (supply and demand) as a determinant of price.

  • History highlights important milestones like Augustin Cournot's supply-demand graph and Alfred Marshall's work, emphasizing justice and ethical considerations within exchange.

  • Classical Economists built theories around value and how labor and costs are involved.

  • Marginalist thinkers shifted the focus of value to subjective value tied to preferences.

Money, Lending, and Interest

  • The evolution of money, from barter systems to modern currency, affects exchange and value.

  • Ancient laws and views regarding usury (charging interest on loans) were frequently viewed negatively.

  • Classical and modern economic thought on interest and money are relevant.

Public Finance

  • Governments use taxation and debt for funding public spending in a variety of applications.
  • Historical tax theory traces back to ancient civilizations, where taxes were linked to justice and wealth.
  • Classical economists analyzed taxation, highlighting issues of equity, efficiency, and the role of the state.

Economic Growth

  • Economic growth, increasing material standards of living, stems from compounding.

  • Classical economic theories analyze aspects of growth, particularly divisions of labor and capital accumulation, noting diminishing returns.

  • Endogenous growth theory emphasizes innovation and ideas as drivers for growth.

International Trade

  • International trade theories analyze factors influencing trade patterns and benefits for countries.

  • Pre-classical trade theories focused on distributive aspects of resources and justice.

  • Mercantilists advocated that nations should accumulate wealth through a trade surplus.

  • Classical thinkers explored different models including absolute advantage, comparative advantage, and the roles of factors of production.

Theories of Recessions and Depressions

  • Early economic downturns were often attributed to natural causes.

  • Modern business cycles incorporate phases that repeat.

  • Key historical examples like the Great Depression illustrate the severity of large and protracted downturns.

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Description

Test your knowledge on key economic theories and contributors from classical economics to the Keynesian Revolution and beyond. Explore significant concepts such as monopolistic competition and the Monetarist Counterrevolution. This quiz will challenge your understanding of the evolution of economic thought.

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