r e h t e g o t Subjective Value the worth of a good or service as determined by its usefulness to the buyer Voluntary Exchange the act of buyers sellers freely willingly engaging in market transactions Trade Wealth Creation will occur when there is a reduction in tariff barriers leading to lower prices It will lower cost producers which will lead to an increase in consumer surplus economic welfare Specialization fundamental economic concept that helps explain the division of labor present within modern economies of scale Price System prices facilitate coordinate voluntary exchanges across many peoples Invisible Hand term economists use to describe the self regulating nature of the marketplace If marginal bene t MB is GREATER THAN marginal cost MC then do it SUBJECTIVE VALUE VOLUNTARY EXCHANGE 1 voluntary exchanges create value for both parties move resources from low value uses to high value uses make use of subjective value resources play a trick on human nature TRADE WEALTH CREATION the larger the market the greater the opportunities for wealth creation and trade Trade is 1 Acquiring things trade theft fraud begging make it ourselves It is not from the benevolence of the butcher the brewer or the baker that we expect our dinner but from their regard for their own self interest Adam Smith conducted only by individuals Boudreaux SPECIALIZATION markets gives people the opportunity to bene t from specialization 1 Adam Smith explained by Boudreaux total output of any group rises if each member of the group specializes a no lost time moving from task to task b each worker s skills improve c more specialized tends toward mechanization economic growth rises because a division of labor specialization depends with more workers b division of labor depends with more buyers EX pediatric gastroenterologist larger markets encourage product innovation EX pharmaceutical development Pencil video Chauvin video about pin watch I PRICE SYSTEM prices facilitate coordinate voluntary exchanges across many people 1 prices guide the Invisible Hand INVISIBLE HAND Promote an end which was no part of his intention through pursuing his own interest Adam Smith TARIFFS Whirlpool case 1 South Korea dumped washers into United States to gain market share either by selling them lower than they sell for in South Korea selling them lower than cost of production 2 South Korean companies say tariffs will raise prices hurting consumers will decrease choices will jeopardize American companies investment innovation job growth SWEATSHOPS economics is more about what you do not see than what you see 1 if more sweatshops more competitive bene ts to employees 2 more practical de nition that all entities should concentrate their efforts on effort which they have a natural advantage in which they can produce more ef ciently than competing entities 3 closing boarders to trade we face higher prices lower standards of living EX MIssouri St Louis to illustrate the narrowing of trade 4 My concern is not that there are too many sweatshops but that there are too few Sachs Competition a scenario where different economic rms are in contention to obtain goods that are limited by varying elements of the marketing mix price product promotion place Monopoly a market in which there are many buyers but only one seller Rent Seeking a process in which political leaders essentially rent out parts of the state to their patrons who as a result control public goods that would otherwise be distributed in a nonpolitical manner COMPETITION 1 generally motives effort strategy performance EX Athletics Usain Bolt not break 200m sprint record because he could not hear the threat of the second place runner which deprived him of competitive push EX Economics Flowers at orist are 20 and owers at Dillions are 7 2 Darwins Theory of Natural Selection traits favoring survival are selected the species adapts to environmental changes EX Peppered Moths 23 min in Chauvin s video mechanism relies on self interest the invisible hand 3 market competition ful lls 3 vital functions according to Wolfgang Kasper a DISCOVERY Human well being can always be improved by new knowledge Competitive rivalry among suppliers buyers is a powerful incentive to search for knowledge b SELECTION PEACEFUL COORDINATION dollar voting Competitive dollar voting selects what people really want exposes error through the reprimand of red ink in the process dispersing useful knowledge c CONTROL OF POWER competition forces wealthy to re invest Competition tames concentrations of economic power redistributes wealth MONOPOLY 1 the bad competitors tend toward escaping the competitive discipline through agreement 2 Rent Seeking competitors attempt to escape the competitive discipline through governmental protection 3 the good normal pro ts earning zero economic pro ts means that a business is earning the same amount as it would in any other economic activity economic moats Warren Buffett a designed to elevate above normal pro ts Creating value is not enough you also need to capture some of the value you create b de ned a competitive advantage built on superior products processes c creative monopoly creates an economic most so deep wide that you effectively have no competition 4 economic freedom de ned by Wolfgang Kasper secure property rights freedom of contract rule of law 5 creative destruction by Joseph Schumpeter competition motivates innovation which is creative thus the creative replaces the old thereby destroying the want need for the old capitalism s pain gain are inextricably linked societies that try to reap the gain of creative destruction without the pain nd themselves enduring the pain but without the gain Ethics the principles of right wrong that guide an individual in making decisions Morals the rules people develop as a result of cultural values norms Laws society s values standards that are enforceable in the courts Impartial Spectator another component of Adam Smith s ethical system that tempers one s pursuit of self interest self love Implies an objective system of justice justice based thinking speaks to one s moral sense conscience Power Of The Purse the in uence that legislatures have over public policy because of their power to vote money for public purposes Ethical Dilemma Right vs Right a situation in which ethical principles con ict or when there is no one clear course of action in a given situation Business Ethics the use of ethics in making business decisions 1