It’s Valentine’s Day, and there’s nothing that Prof. Chris Coyne loves more than free markets. In fact, our ability to appreciate and enjoy Valentine’s Day is the direct result of the wealth created by markets. Before getting into the specifics, there are three economic principles that are illustrated by Valentine’s Day: The importance of free […]
Many believe that market economies create a dog eat dog environment full of human conflict and struggle. To Prof. Aeon Skoble, the competition in markets does not create conflict, but rather, encourages people to cooperate with one another for mutual benefit. For instance, suppose a thief steals a suit from Macy’s. If Macy’s knew who […]
Are the choices provided by a market economy stressful? According to Prof. Mark Pennington, it can definitely be stressful to choose among several different options. In fact, Pennington himself is often overwhelmed by the choices provided to him in a modern supermarket. This phenomena, called the paradox of choice, has often been used to make […]
Do stable property rights benefit only the rich? Prof. Aeon Skoble argues that, contrary to public belief, equally protected property rights are the little guy’s best protection against the rich and those with power. Put another way, property rights benefit all people regardless of wealth and power status.
How quickly could you sum up the principles of economics? While standing on one foot, Prof. Art Carden discusses the following economic principles in just over two minutes: Individuals strive to achieve their goals in the best ways possible. Every action has a cost. Incentives matter. Value is determined on the margin. Profits and losses […]
Why are some countries wealthy while other nations are poor? Prof. James Otteson, using the ideas of Adam Smith, explains how the division of labor is a necessary and crucial element of wealthy nations. Additionally, Otteson explains Smith’s idea of the invisible hand, which explains how human beings acting to satisfy their own self interest […]
People living together must find some way to preserve common resources. Unfortunately, there are strong incentives for people to exploit these resources when they are held in common by everyone. As Prof. Sean Mullholland at Stonehill College explains, the ‘tragedy of the commons’ occurs when individuals acting independently end up depleting shared resources, such as […]
In economic activity, there are sometimes ‘externalities’ or spillover effects to other people not involved in the original exchange. Positive externalities result in beneficial outcomes for others, but negative externalities impose costs on others. Prof. Sean Mullholland at Stonehill College addresses a classic example of a negative externality, pollution, and describes three possible solutions for […]
Does destruction create jobs? After natural disasters, terrorist attacks, and wars, some people argue that these disasters are good for the economy, because they create jobs and prosperity. As Prof. Art Carden of Samford University explains, this is an example of the “broken window fallacy,” a term coined by Frederic Bastiat. When a shopkeeper’s window is broken, […]
What is the social function of profits and losses? As Prof. Daniel J. Smith of Troy University describes, they provide an incentive for people to follow the information provided by the price system. By pursuing profits and avoiding losses, producers and consumers use scarce resources in effective ways. In anticipation of being rewarded with profit, […]
Prof. Don Boudreaux explains what economists mean when they talk about unintended consequences. Essentially, unintended consequences are the large outcomes that emerge from the actions made by many individuals. These outcomes can be good or bad. Therefore, when analyzing various polices, we must be extremely careful to distinguish between intentions and results.
According to Prof. Angela Dills, incentives are important and help economists predict individual behavior. Recognizing that incentives matter is fairly straightforward. What’s difficult is determining all the different ways a policy might affect people’s incentives and change people’s behavior. A good economist looks not only at the obvious incentives created by a particular policy, but […]
Economists say that value is subjective. But what do they mean by that? Why is this concept so significant? In the above video, Prof. Don Boudreaux demonstrates the concept by comparing a Che Guevara t-shirt and a Milton Friedman t-shirt. Most people would value these shirts differently, and would be willing to pay more for […]
Why are prices important? Prof. Daniel J. Smith of Troy University describes the role that prices play in generating, gathering, and transmitting information throughout the economy. Information about the supply and demand of different goods are dispersed among different buyers and sellers in an economy. Nobody has to know all this dispersed information; individuals only […]
Prof. Antony Davies explains that prices are not levers that set value, but rather, are metrics that respond to value. Therefore, since government cannot legislate value, attempts to control prices will generate unintended consequences. Using the minimum wage as an example, Davies demonstrates that minimum wage laws increase unemployment rates amongst low-skilled workers.
Prof. Steve Horwitz describes the concept of spontaneous order, a key theme in the works of Friedrich Hayek. This idea allows us to understand the complexity of the free market system, which exhibits an order and regularity without being deliberately designed by any central authority.
Some people assume that for there to be order in human society, there needs to be some central planning or direction. But as Chapman University professor Tom W. Bell explains, much of the order we observe in our lives is not the product of human design, it’s a product of spontaneous order. Drawing from the […]
Have you ever stated economic principles as haiku? Have you tried? Economics professor Art Carden takes the challenge in this short video on the laws of supply & demand.
From the IHS Vault: Economics professor Howie Baetjer of Towson University explains how the market process generates improvements in the human condition. In particular, he highlights how profit & loss serve to help people channel their activities in creative and socially useful directions. Filmed at the 2006 IHS seminar “Exploring Liberty” at Princeton University. Produced […]