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508Discussions - Economics 508 Discussion This document...

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Economics 508 Discussion This document will be updated from time to time. Go down to next pages to see the latest day’s discussion questions. Subject to daily change.
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10-Jan-06 Today’s Readings Hayek Lavigne Ch 10-11 G&S Ch 1-4
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Hayek What is the basic economic problem? The textbook answer is to find the “solution” to the best use of society’s resources in terms of maximizing an indicator of economic well-being However, the problem that “society faces” (as opposed to the economist) is to extract and utilize the information or knowedge needed to arrive at the economist’s solution to the economic problem. How is the solution to this problem achieved? Not by central planning, but by individual planning. Why? because no individual has the requisite command of all the knowledge. Can you think of problems where individual knowledge may be insufficient? Coordination of arrivals and departures at airports? Is this an inherent problem or is it only a problem under current institutional arrangements? Is the solution simply an engineering or data problem? It’s not a matter of acquiring “scientific knowledge” (what is that?) but situation-specific knowledge of “time and place.” What is an arbitrageur?
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Hayek (continued) How do markets help in utilizing knowledge? – The the goal of increasing profits (firms) and satisfaction (consumers) forces sellers and buyers to reveal their information and to look for profit opportunities (discover information—knowledge). Can planners achieve economic optimization? – They need two things: (1) knowledge and (2) the incentive to use it for society’s benefit. – Under market socialism or democratic socialism managers where to be given “orders” to use market prices to minimize costs and produce the “correct” amounts of goods and services, but there would be no reward for risk-taking, which is necessary when the “data” (information) is changing. What is the role of “change” in Hayek’s thinking? – There is no need for a market when there is no change. Can economic knowledge in Hayek’s sense be conveyed to central authorities (planners) in statistical form? – No. We don’t have the resources to do that.
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How much knowledge does an indvidual need to act successfully in a market economy? Only knowledge of his/her own affairs, because the market summarizes everything else. Economic efficiency requires equlality of opportunity costs across uses, but buyers and sellers don’t need to know this. Prices are equalized through markets. Is the emergence of markets inevitable? Who where Leon Trotsky, Oscar Lange, Abba Lerner,
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This note was uploaded on 07/17/2008 for the course ECON 508 taught by Professor Fleisher during the Winter '06 term at Ohio State.

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508Discussions - Economics 508 Discussion This document...

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