Midterm PMAP 3111
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Midterm PMAP 3111
urban political economy
Urban political economy midterm
What kind of economy do we have?
A market economy
Give the names of the two market economists that we pay attention to for fundamental description of market and welfare econmics.
What does Adam Smith's book
An Inquiry into the Nature and Causes of the Wealth of Nations
The "rational economic man"- he looks out for his own self interest in a rational way,
Neoclassical Economic Theory.
The economic problem is the problem of allocating scarce resources among competing ends (choice and allocation)
a simplified model of reality
power derives with what you can do with model results
model describes human activities in terms of market interactions
What are the several critical assumptions of the Neoclassical Economic Theory?
value = human utility, which consists of human preferences of goods and services, expressed in terms of WTP
all decision makers are economically rational
all resources and goods are individually owned
all markets are competitive- free entry and free exit
there exists perfect information
What are the collararies of the assumptions of the Neoclassical Economic Theory?
Price is a measure of value (from 1 to 4)
All possible beneficial transactions take place, this society could not be better off
State and nonmarket social relationships are irrleevant
equity is not relevant
What is the Pareto Optimality?
No transaction remains that would benefit anyone without hurting someone else more
What does the
Tragedy of the Commons
It explains the critical assumption that all resources are individually owned.
When one party to a transaction has information not possessed by the other, that party has an advantage (ex. Martha Stewart)
The Circumstances that arise in financial markets when borrowers with the worse credit are the ones most likely to seek loans
What is a
An asymmetric infomation after a transaction; in financial markets, a person to whom money has been lent may engage in riskier behavior increasing the probability of default (ex. Enron)
What are the two kinds of monopolies?
by private business (ex. Standard Oil)
(ex. utility-large economy of scale p.536)
What are the problems of social functions?
fails to be sufficiently inclusive
promotes decisions that increase wealth
What are the problems of individual welfare?
Not pure competition
Not full private ownership
What are the three conditions for an economy to be economically efficient?
be on its production possibilities froniter
What is the
marginal rate of transformation
The amount of good B that must be given up to produce good A
The amount of good B that must be given to people so they willingly give up a unit of A
What are the effects of efficiency when scarce resporces appear to be free?
less will be produced than could be produced with other resource allocations
the wrong "mix" of goods and services will be produced
What does "non-rival" mean? Non-excludable?
additional users do not deprive others of the goods
once the good has been provideed, it is not feasible to prevent people from using it
What is the significance of
impure public goods
These kinds of goods that become "rival" with congestion are also called "club goods" (Lexus lanes)
Who is Tony Downs?
He explains the Public Choice Theory though the median voter theory. As long as all preferences aresingle peaked, the outcome of majority voting reflects the preferences of the median voter
What is the motivation of those serving in public office according to Downs?
Income, prestige and power
What are political parties' existence for?
not to carry our a precoonceived set of policies or serve specific interest groups
form policies to serve interest groups, gain their support, and stay in office
any social function is a by-product of efforts to gain office
In essence, they sell policies for
Median Voter Theory
It is the outcome of majority voting where the winner takes all according to Downs
Explain Arrow's Impossibility Theorem?
Arrow demonstrated mathematically that it is impossible to find a voting that can produce a decision
able to rank all possible outcomes
Responsive to individual preferences
Preferences are transitive
social rankings are responsive to individual rankings
What are the three parties in the Iron Triangle?
What does Niskanin argue about the self-interests of bureaucrats?
There are no market consraints
Leads to overspending and oversupply of public goods
Bureaucrats argue for spending on basis of total cost and benefit
How is public choice different from welfare economics?
Public choice is openly critical to government failure
extremely suspicious of decision-making process in government and perfers market mechanism for everything
What were some criticisms of Hunter's experiment?
Original panels based on hunches
no way to know why the powerful are powerful
unable to gauge relative power
reputation and actual power are not the same thing
equates overall power with power on different issues