No Free Lunch: Economics for a Fallen World: Third Edition, Revised

Chapter Ten: It’s all About the Institutions! 244 CHAPTER TEN: QUESTIONS FOR REVIEW 1. Compare the economic process of gaining and incorporating new knowledge as we progress through time and eliminate uncertainty with the spiritual process of growing our faith as we are progressively sanctified (conformed to the image of Christ). Or better yet, if you are doing this as a class, break up in small groups and discuss. 2. How does our view of the past affect our decisions in the future? 3. We made a distinction between risk and uncertainty. Review the differences between the two. Classify each of the following as risky or uncertain: a. The wage rate an entrepreneur will pay once the current labor agreement expires. b. The New York Yankees are the most successful franchise ever, with 27 World Series championships. Will they win the World Series in 2025? c. Who will be elected President in 2020? d. Stinky Steel company has a long-term reject (failure rate) of 1 in 10,000. Will the next production run fail? 4. We described how markets provide incentives through the price system in order to guide entrepreneurs. Describe why the price system is both sufficient and economical to meet the social goal of allocating resources to their most highly valued uses. 5. Describe the difference between dispersed and centralized knowledge. Why does this matter to how we plan our economy? Provide an example of each type of knowledge. 6. What are institutions? How do they help entrepreneurs navigate the market process? 7. Identify whether the following are formal or informal institutions. a. The Securities and Exchange Commission (S.E.C) b. Marriage c. A car dealer’s policy to wash every car that comes in for service (not written down) d. Free refills at fast food restaurants when customers have access to the drink dispenser (it’s not behind the counter)