Term
| 1. Why do economists think maximizing is rational even if it makes us act in bad ways? |
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Definition
| Rational means maximizing a goal (utility, profit, votes) given constraints—not being morally good. People act in self-interest and respond to incentives. Bad outcomes can still be rational choices under the rules they face. |
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Term
| What does rational mean in this class? |
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Definition
| Maximizing a goal (utility, profit, votes) given constraints. It does not mean being morally good. |
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Term
| 2. How do we analyze something in a scientific way? |
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Definition
| Form a hypothesis and look for evidence that supports or refutes it. |
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Term
| 3. How did people before Adam Smith see the world differently? Why did Smith trust free markets? |
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Definition
| Aquinas used natural law and a just price. Mercantilists treated wealth as gold and wanted the state to steer trade. Smith said that with many buyers and sellers and good information, self-interest is pushed by competition—an invisible hand—to serve others. |
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Term
| How did Aquinas see prices before Smith? |
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Definition
| Natural law and a just price. |
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Term
| How did mercantilists see the world? |
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Definition
| Wealth is gold. The state should steer trade. |
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Term
| Why did Smith trust free markets? |
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Definition
| With many buyers and sellers and good information, self-interest is pushed by competition—an invisible hand—to serve others. |
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Term
| 4. Why is competition essential to Adam Smith's theory? |
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Definition
| The invisible hand is competition. Without lots of buyers and sellers (and decent information), self-interest does not line up with the public good. |
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Term
| What is the invisible hand, in these lectures? |
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Definition
| Competition. Many buyers and sellers plus decent information push self-interest to serve others. |
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Term
| 5. Essential elements of capitalism and socialism? Marx's critique? Modern view of socialist economies? |
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Definition
| Capitalism: private ownership of capital; markets answer what to produce, how, and who benefits. Socialism: government answers those three questions. Marx: capitalism is class conflict and internally flawed; workers must take the means of production. Modern view in these lectures: planning has perverse incentives, little innovation, and shortages; real systems are mixed. |
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Term
| What are the essential elements of capitalism? |
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Definition
| Private ownership of capital. Markets answer what to produce, how, and who benefits. |
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Term
| What are the essential elements of socialism? |
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Definition
| Government answers the three questions: what to produce, how, and who benefits. |
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