Chapter 1:
1. What is an economic system?
An economic system is the structured approach a society uses to organize production,
distribution, and consumption of goods and services. It includes traditional systems
based on customs, command systems controlled by government, market systems
driven by supply and demand, and mixed systems that combine elements of both
market and government control. These systems vary by how they handle resources,
labor, and wealth distribution, influencing the overall well-being of a society.
2. What is an institution?
Institutions are formal and informal structures like laws, markets, social norms, and
regulations that organize and guide economic activity. They dictate how resources are
allocated and define the rules by which economic transactions occur. Institutions shape
incentives and constraints for individuals and organizations, influencing both economic
efficiency and the distribution of power within a society.
3. What is a collective action problem?
A collective action problem occurs when individuals or groups fail to work together,
despite the fact that cooperation would benefit all involved. This failure often arises
because individuals prioritize their personal benefit over the group's success, expecting
others to contribute while they free-ride. A classic example is the tragedy of the
commons, where common resources are overused because individuals act in their selfinterest.
4. What are the three realms or dimensions of society?
The three reals include:
1. Economy: Resource allocation is driven by market mechanisms like supply and
demand.
2. Polity: Governance and the enforcement of laws are handled by political
institutions like the government.
3. Civil Society: Collaborative and decentralized arrangements within communities
or organizations govern social interactions and voluntary cooperation. These
structures regulate the functions of the state, market, and community.
societal dynamics (Pg. 12-14).
5. What are the three governance structures?
The three governance structures include:
4. Economy: Resource allocation is driven by market mechanisms like supply and
demand.
5. Polity: Governance and the enforcement of laws are handled by political
institutions like the government.
6. Civil Society: Collaborative and decentralized arrangements within communities
or organizations govern social interactions and voluntary cooperation. These
structures regulate the functions of the state, market, and community.
6. Describe the behavior of homo economicus.
Homo economicus is a theoretical concept representing humans as perfectly rational,
self-interested agents. They seek to maximize their own utility in economic transactions,
acting with full knowledge and consistently making decisions that will yield them the
highest possible benefit. The concept simplifies human behavior for economic models
but often overlooks the complexity of real human motivations (Pg. 17).
7. Describe the behavior of homo reciprocans.
Homo reciprocans is a model of human behavior that highlights cooperation and
fairness. Unlike homo economicus, homo reciprocans values reciprocity and social
bonds, often acting in ways that benefit others even when it doesn’t immediately benefit
them. These individuals are motivated by the desire for mutual respect and fairness and
will punish unfairness even at personal cost (Pg. 18-19).
8. Who proposed that government should assume that all individuals will engage
in opportunistic behavior? Who proposed an appeal to morality to prevent
opportunistic behavior?
David Hume argued that government should assume that individuals act in their selfinterest and are likely to behave opportunistically. He believed that institutions and laws
are necessary to prevent exploitation and ensure cooperation. On the other hand,
Immanuel Kant suggested that morality and ethical principles, like the categorical
imperative, should guide individual actions, preventing opportunism by appealing to a
shared sense of duty and fairness (Pg. 21-23).
9. Name eight determinants of economic systems.
The eight determinants of economic systems are Geography, History, Technology,
Economic Institutions, Political Institutions, Cultural Institutions, Distribution of
Power, and Collective Action. These factors shape the way a society organizes its
economy by influencing resources, technological capabilities, power dynamics, and
societal norms (Pg. 9).
10. Name two primary motivations for institutional change.
Two primary motivations for institutional change are Efficiency and Power. Efficiencydriven changes occur when institutions are reformed to improve productivity and
economic performance. Power-based changes happen when shifts in political or social
influence lead to alterations in the structure of institutions, often to address inequalities
or enhance the influence of certain groups (Pg. 25-26).
11. How does geography influence an economic system?
Geography influences an economic system by determining the availability of resources,
trade routes, and agricultural conditions. For instance, countries with access to oceans
and rivers tend to develop strong trade economies, while resource-rich regions may
specialize in mining or agriculture. Geography often dictates the economic opportunities
and challenges faced by a society (Pg. 13).
12. How does history shape an economic system?
Historical events, such as wars, colonization, and revolutions, play a critical role in
shaping the structure of an economic system. The legacy of past decisions, power
structures, and institutions can influence the distribution of wealth and access to
opportunities, often creating path dependency that affects present-day economies (Pg.
14-15).
13. What is the role of technology in economic systems?
Technology drives productivity, innovation, and economic growth by providing new ways
to produce goods, communicate, and transport resources. Technological advancements
can revolutionize industries, create new markets, and shift labor demands, often leading
to the rise of new economic systems, such as the transition from feudalism to capitalism
(Pg. 16-17).
14. What is the relationship between cultural institutions and economic
performance?
Cultural institutions, such as norms, beliefs, and values, shape economic behavior by
influencing trust, cooperation, and work ethics. In societies where trust is high,
transactions and cooperation are more efficient, boosting economic performance.
Cultural norms can also determine attitudes toward innovation, risk-taking, and wealth
accumulation (Pg. 18).
15. Why is the distribution of power important in economic systems?
The distribution of power determines who controls resources and makes critical
economic decisions. In systems where power is concentrated, economic decisions may
benefit a small elite, leading to inequality. In more democratic or egalitarian systems,
power is more evenly distributed, promoting wider access to resources and
opportunities (Pg. 21).
16. What is the "tragedy of the commons," and how does it relate to collective
action?
The "tragedy of the commons" occurs when individuals overuse a shared resource,
depleting it for everyone because they act in their own short-term interest rather than
the group's long-term benefit. It is a classic example of a collective action problem,
where individual self-interest conflicts with the common good (Pg. 4-5).
17. How can political institutions solve collective action problems?
Political institutions can solve collective action problems by creating laws and
regulations that enforce cooperation and discourage free-riding. Governments can
impose taxes, offer incentives, or establish penalties to align individual actions with the
broader social good, ensuring that public resources are managed sustainably (Pg. 7).
18. How does trust impact economic transactions?
Trust reduces the need for costly contracts and enforcement mechanisms, making
economic transactions more efficient. In high-trust societies, individuals and businesses
are more willing to engage in trade, take risks, and invest in long-term ventures,
contributing to economic growth and stability (Pg. 19-20).
19. What role do markets play in civil society?
Markets within society enable individuals to participate in voluntary trades of goods and
services. They offer chances for engaging socially, collaborating, and reaping mutual
rewards. Markets also promote the development of business connections, encouraging
trust and mutual cooperation among groups. (Pg. 23-24).
20. How do economic systems evolve over time?
Economic systems evolve as societies face new challenges, adopt new technologies,
and respond to shifts in power, culture, and institutions. Historical events, changes in
resource availability, and technological advancements often spur institutional change,
leading to the rise or fall of different economic systems (Pg. 26-27).
Chapter 2
1. Name the eight criteria for assessing economic systems.
The eight standards for evaluating economic systems are Prosperity, Freedom,
Justice, Stability, Peace, Sustainability, Human Development, and Democracy.
These standards are utilized to assess the extent to which an economic system satisfies
societal demands. For example, wealth represents a society's prosperity, while
sustainability evaluates if present actions can continue for upcoming generations. The
overall success and stability of a system are influenced by a combination of these
factors. (Pg. 31).
2. Describe an economic surplus.
An economic surplus occurs when more goods or services are produced than
demanded, leading to excess resources. This additional sum allows for trade, saving, or
reinvestment. If a farmer has extra food after feeding their family, they can opt to trade it
for cash or different items. An excess of money results in investments in infrastructure,
technology, and education, improving long-term economic growth and quality of life.
(Pg. 35).
3. What are the five types of capital?
The Physical, Financial, Human, Social, and Cultural capital make up the five types of
capital.





Machinery and infrastructure are examples of physical capital, which are
tangible assets.
Monetary resources for investment are known as financial capital.
Human capital encompasses the workforce's skills, education, and knowledge.
Social capital denotes the worth of trust and social connections.
Cultural capital consists of society's valued knowledge, habits, and practices.
Every form of capital is essential for the economic progress of a country. (Pg. 37).
4. Why does capital accumulation lead to increased prosperity?
Capital accumulation increases prosperity by enhancing productivity and improving
living standards. When surplus resources are invested in tools, technology, or
education, workers become more efficient, producing more goods with less effort. For
example, a farmer with a tractor can cultivate larger areas more quickly, generating
higher yields. This increased efficiency leads to greater wealth, which can be
reinvested, creating a positive cycle of economic growth (Pg. 40).
5. Why did capitalism triumph over all previous economic systems?
Capitalism triumphed over previous economic systems because of its ability to generate
large economic surpluses through competition and innovation. Capitalism's emphasis
on private property rights and reinvestment encourages continuous improvement in
efficiency and technology. Unlike feudal or command economies, capitalism rewards
entrepreneurs for developing better methods, products, or services, leading to rapid
economic growth and the global spread of capitalist practices (Pg. 43).
6. Why are businesses in a competitive market economy pressured to reinvest
their profits?
In a competitive market, businesses must reinvest profits to maintain their position and
stay ahead of competitors. Reinvestment in new technology, employee training, or
research and development helps businesses improve efficiency, increase production
capacity, and innovate. For instance, a manufacturing company might reinvest in
automation to lower costs and increase output, enabling it to offer more competitive
prices and grow its market share (Pg. 45).
7. Name the four types of state presented in the text.
The four types of state are Failed state, Predatory state, Night-watchman state, and
Developmental state.

A failed state lacks the ability to provide basic governance or public services.

A predatory state is one where elites exploit resources for personal gain.

The night-watchman state has minimal government intervention, focusing on
security and protecting private property.

A developmental state actively promotes economic development through
infrastructure investments and regulatory policies (Pg. 50).
8. Which type of state does the text defend as most conducive to economic
development?
The text defends the developmental state as the most conducive to economic
development. This type of state actively invests in infrastructure, education, and
technology, while maintaining an independent regulatory framework that ensures fair
competition. By aligning its policies with long-term economic goals, the developmental
state promotes growth, human welfare, and political participation without being overly
influenced by private interests (Pg. 53).
9. Name four functions of a successful civil society.
Four functions of a successful civil society include:
1. Creating and Sustaining Capital: Civil society fosters social and human capital
through collaboration and trust.
2. Solving Collective Action Problems: It helps communities coordinate and
achieve shared goals.
3. Providing Identity, Meaning, and Purpose: Civil society provides a sense of
belonging and values through cultural and social institutions.
4. Facilitating Political Governance: It enables citizens to participate in political
processes and hold governments accountable (Pg. 55).
10. Name three characteristics of a failed civil society.
A failed civil society exhibits Oppression, Aggression, and Fragmentation.

Oppression refers to the dominance of powerful groups that marginalize others.

Aggression signifies the prevalence of violence and conflict in social
interactions.

Fragmentation indicates the breakdown of social cohesion, with communities
divided along lines of ethnicity, class, or ideology, hindering collective efforts for
the common good (Pg. 58).
Additional 10 Questions and Answers for Chapter 2:
11. What role does freedom play in assessing economic systems?
Economic freedom refers to the level of independence individuals and businesses have
in making decisions on production, consumption, and trade. Market economies, which
prioritize freedom, frequently foster economic growth by promoting innovation and
entrepreneurship. Finding a balance between freedom and regulation is essential in
order to avoid monopolies and exploitation. (Pg. 31).
12. How does human capital contribute to economic development?
Human capital, made up of education, skills, and knowledge, enhances labor
productivity, consequently boosting economic growth. A more educated and adept
workforce can generate new ideas, utilize technology more effectively, and enhance
productivity, leading to higher wages and overall well-being. Investing in human capital
is essential for lasting economic success. (Pg. 37).
13. What is the significance of social capital in economic systems?
Social capital, consisting of trust, networks, and cooperation, facilitates smoother
economic transactions and collective action. High levels of social capital allow for easier
cooperation between businesses and communities, reduce transaction costs, and
promote trust, which is essential for long-term contracts and investments. Societies with
strong social capital tend to experience less corruption and more sustainable growth
(Pg. 38).
14. How does financial capital differ from physical capital?
Financial capital is the funds that can be invested in assets like stocks, bonds, or
savings. It offers the financial resources needed to put money into tangible assets such
as equipment, structures, and instruments. Although physical capital boosts productivity
directly, financial capital is still crucial for businesses to obtain resources and expand,
ultimately driving economic growth. (Pg. 36-37).
15. How do failed states hinder economic development?
Failed states, characterized by weak governance, corruption, and lack of law
enforcement, hinder economic development by creating uncertainty and instability.
Without a functioning legal system or infrastructure, businesses cannot operate
efficiently, and foreign investors are deterred. This leads to poverty, underdevelopment,
and, in extreme cases, the collapse of markets (Pg. 50-51).
16. Why is sustainability important in assessing economic systems?
Sustainability ensures that economic practices do not deplete resources or harm the
environment in ways that jeopardize future generations' ability to meet their needs. An
economic system that prioritizes sustainability balances short-term profits with long-term
environmental stewardship, ensuring continued prosperity without environmental
degradation (Pg. 31-32).
17. What is the role of the night-watchman state?
The night-watchman state limits its role to protecting individual liberties, property rights,
and national security. It refrains from heavy involvement in economic regulation or
welfare, believing that the market should operate with minimal government interference.
This state structure is often associated with classical liberalism, emphasizing personal
freedom and small government (Pg. 52).
18. How does capitalism encourage innovation?
Capitalism encourages innovation through competition and the profit motive.
Businesses must constantly seek new ways to improve products or reduce costs to gain
an edge over rivals. This incentive structure leads to technological advancements and
creative solutions that drive economic growth, ensuring that successful innovations are
rewarded in the market (Pg. 42-43).
19. What are the risks associated with predatory states?
Predatory states exploit resources for the benefit of a small elite, leading to widespread
corruption, inequality, and economic stagnation. In such states, public institutions are
weak, and private interests dominate government decisions, which undermines trust,
deters investment, and often leads to social unrest (Pg. 51).
20. How does cultural capital influence economic outcomes?
Cultural capital influences economic outcomes by shaping social expectations, work
ethics, and communication styles. It includes the knowledge, skills, and education that
are valued within a society. For example, societies that prioritize education and
innovation tend to experience higher economic growth, as individuals with cultural
capital can navigate social systems more effectively and contribute to economic
development (Pg. 38).
Chapter 3
1. What two institutions were necessary before markets could develop
beyond simple barter?
The two necessary institutions for markets to develop beyond barter were:
o
Money: A medium of exchange that simplifies transactions.
o
The Rise of the State: A governing authority to enforce contracts, protect
property rights, and regulate markets.
2. Why did early societies seek to suppress market activity?
Early societies suppressed market activity because the self-interest driving
markets was seen as dangerous to politics and community life. Markets were
considered a threat to social stability and moral values, promoting competition
and wealth accumulation. To protect communal harmony, political and social
institutions tightly controlled market behavior, keeping it separate from daily life.
3. Name seven types of capitalism presented in the text.
Seven types of capitalism presented in the text are:
o
Competitive Capitalism
o
Organized Capitalism
o
State Capitalism
o
Regulated Capitalism
o
Welfare Capitalism
o
Planned Capitalism
o
Neoliberal Capitalism
4. What is the difference between static efficiency and dynamic efficiency?
Static Efficiency (Economic efficiency): Refers to the optimal allocation of
resources at a specific point in time, ensuring that resources are used to
maximize welfare without considering future changes. For example, matching the
supply of apples exactly to current demand.
Dynamic Efficiency: Involves the optimal allocation of resources over time,
focusing on long-term growth and improvements. It emphasizes investment in
innovation and technology to enhance future productivity and well-being, such as
developing better techniques for apple production.
5. What is creative destruction?
Creative destruction is a concept introduced by economist Joseph Schumpeter. It
refers to the process through which new innovations replace outdated products,
technologies, and business practices. While innovation drives economic growth
and prosperity, it simultaneously causes some existing products and industries to
become obsolete, leading to disruptions such as job losses and factory closures.
6. Give an example of explicit collusion.
An example of explicit collusion is when major airlines agree to fix ticket prices
for flights on certain routes. By publicly coordinating and setting uniform prices,
these airlines are engaging in explicit collusion, which is typically illegal under
antitrust laws.
7. Give an example of tacit collusion.
An example of tacit collusion is when major airlines practice price leadership.
Suppose a leading airline raises its ticket prices on a popular route. Other airlines
might observe this move and increase their prices accordingly, without any formal
agreement or communication. This unspoken coordination allows all airlines to
maintain higher prices and avoid aggressive price competition, benefiting from
the increased revenue while subtly cooperating.
8. What two market failures arise from missing or incomplete markets?
Two market failures that arise from missing or incomplete markets are:
o
Public Goods: Markets fail to provide goods like clean air or national
defense, which are non-excludable and non-rivalrous.
o
Externalities: Costs or benefits of activities, such as pollution, are not
reflected in market prices, leading to market inefficiencies.
9. What is asymmetric information?
Asymmetric information arises when one party in a transaction has more or
better information than the other. For example, in the used car market, the seller
often knows more about the car’s condition than the buyer. This information gap
can lead to problems like the buyer overpaying for a car that’s not in as good
condition as advertised, ultimately causing inefficiencies and trust issues in the
market.
10. According to the text, who were the two intellectual founders of market
fundamentalism?
The two intellectual founders of market fundamentalism were Friedrich Hayek
(1899–1992) and Milton Friedman (1912–2006).
Additional Questions and Answers for Chapter 3
Question 1: How did the emergence of money impact trade and economic
development?
Answer: The emergence of money as a medium of exchange greatly facilitated trade by
eliminating the inefficiencies of barter. It provided a standard measure of value,
simplified transactions, and allowed for the accumulation of wealth, thus promoting
economic development and enabling markets to grow.
Question 2: What role did the state play in shaping market activities in early
economies?
Answer: The state played a crucial role in regulating market activities by enforcing
contracts, protecting property rights, and ensuring market stability. This involvement
helped create an environment conducive to economic transactions, thereby fostering
trust and cooperation among market participants.
Question 3: How do organized and competitive capitalism differ?
Answer: Organized capitalism features significant coordination among firms, often
involving formal agreements and networks, while competitive capitalism emphasizes
individual competition among firms with minimal coordination. Organized capitalism may
lead to more stability, while competitive capitalism encourages innovation and
consumer choice.
Question 4: In what ways can creative destruction be beneficial for an economy?
Answer: Creative destruction fosters innovation and economic growth by encouraging
the development of new products and technologies. While it can disrupt existing
industries, it ultimately leads to improved efficiency, better goods and services, and
increased overall prosperity as resources are reallocated to more productive uses.
Question 5: How do market failures related to public goods affect society?
Answer: Market failures related to public goods can lead to under-provision or complete
lack of essential services like national defense and public health. This can result in
societal challenges, as these goods are crucial for overall welfare but are often not
provided efficiently by private markets due to their non-excludable and non-rivalrous
nature.
Question 6: What are the implications of asymmetric information for market
transactions?
Answer: Asymmetric information can lead to adverse selection and moral hazard,
where buyers or sellers take advantage of their superior knowledge. This situation can
result in inefficiencies, reduced trust in market transactions, and potentially the collapse
of certain markets, as parties become wary of engaging in exchanges.
Question 7: Explain the concept of externalities and provide an example.
Answer: Externalities are costs or benefits that affect third parties who did not choose
to incur those costs or benefits. For example, pollution from a factory imposes costs on
nearby residents who suffer from health issues, while the factory does not bear these
costs in its production decisions, leading to market inefficiencies.
Question 8: Why is the concept of dynamic efficiency important for economic growth?
Answer: Dynamic efficiency is essential for economic growth as it emphasizes the
importance of long-term investments in innovation and technology. By focusing on
resource allocation over time, economies can improve productivity, adapt to changing
market conditions, and sustain growth, ultimately enhancing societal welfare.
Question 9: How did Hayek and Friedman influence economic thought and policy?
Answer: Hayek and Friedman significantly influenced economic thought by advocating
for market fundamentalism, which emphasizes minimal government intervention and the
belief that free markets are the best mechanism for resource allocation. Their ideas
shaped policies promoting deregulation and privatization, especially in the late 20th
century.
Question 10: What challenges do states face when trying to regulate markets
effectively?
Answer: States face challenges such as balancing regulation with market efficiency,
avoiding regulatory capture by special interests, and adapting to rapidly changing
economic environments. Effective regulation requires a deep understanding of market
dynamics and the ability to implement policies that protect public welfare without stifling
innovation.
.
Chapter 4
1. What is the primary difference between fascism and communism? The
primary difference between fascism and communism lies in their approach to
property and governance. Fascism supports private property and allows private
enterprises to exist, but the state collaborates with industrial leaders to control
economic decisions. In contrast, communism seeks to abolish private property
altogether, with the state owning all means of production and directing the
economy through central planning (Pg. 65).
2. Name five factors determining the quality of government in a nation. The
quality of government in a nation is influenced by several factors:
o
Culture
o
Constitution
o
Distribution of power
o
Quality of leadership
o
Quality of democracy These elements collectively shape the effectiveness,
accountability, and legitimacy of governance (Pg. 70).
3. Briefly describe the historical emergence of the first formal states. The first
formal states emerged as a response to the need for centralized authority to
resolve disputes and protect communities. Initially, tribal elders created informal
systems to mitigate property disputes. However, as conflicts escalated between
communities, violence became common. Formal states arose to provide order,
establish governance, and offer protection against external threats (Finer 1999)
(Pg. 72).
4. Name two ways in which empires kept labor costs low. Empires managed to
keep labor costs low through:
o
Reliance on slave labor: They utilized enslaved individuals to perform
work without compensation, drastically reducing production costs.
o
Coercion of indigenous populations: Empires often compelled local
people into labor through threats or legal mandates, minimizing the
financial burden of wages (Pg. 75).
5. In what country did fascism first appear? Fascism first emerged in Italy after
World War I, primarily under the leadership of Benito Mussolini (1883-1945) (Pg.
66).
6. What is a fasces? Fasces refers to a Roman symbol of authority, consisting of a
bundle of rods tied around an axe. It represents the power to enforce laws and
administer justice, symbolizing unity and strength (Pg. 67).
7. What is the best, and perhaps only, example of a current communist
nation? North Korea, officially known as the Democratic People's Republic of
Korea (DPRK), is often regarded as the most prominent current example of a
communist nation. It operates under a highly centralized and authoritarian regime
led by the Workers' Party of Korea (Pg. 69).
8. Name three ways in which states can promote sustainability. States can
promote sustainability through:
o
Environmental regulations: Implementing rules to manage pollution and
conserve resources.
o
Taxes and subsidies: Offering financial incentives to encourage ecofriendly practices.
o
Creating markets: Establishing trading systems for environmental credits
or emissions permits to drive reductions in pollution and resource
consumption (Pg. 74).
9. What nation is cited in the text as having a thriving black market in human
kidneys? The Philippines is noted for having a thriving black market for human
kidneys, highlighting issues of organ trafficking and exploitation (Pg. 76).
10. Name five strategies for preventing developmental states from
deteriorating into predatory states. To prevent developmental states from
becoming predatory states, the following strategies can be implemented:

Public funding of political campaigns: Reducing the influence of private
money in politics.

Increased transparency: Promoting openness in government operations.

Increased accountability: Holding public officials responsible for their actions.

Redefining corporations and speech: Clarifying the role of corporations in
political discourse.

Reforming media regulations: Updating laws to ensure fair reporting and
prevent media manipulation (Pg. 78).
11. What role does culture play in the quality of government? Culture shapes
the values and norms that influence governance. Societies with a strong culture
of civic engagement and trust tend to have better governance quality, leading to
more effective and accountable governments. Cultural factors can dictate how
citizens interact with the state and participate in political processes, impacting
overall governance (Pg. 70).
12. How did empires contribute to the spread of political ideas? Empires played
a significant role in disseminating political ideas across vast territories through
conquest and administration. As they established control, they often imposed
their political structures and ideologies, facilitating the exchange of ideas and
practices among diverse populations, which led to the evolution of governance in
conquered regions (Pg. 73).
13. What impact does quality of leadership have on governance? The quality of
leadership is crucial for effective governance as it influences policy decisions, the
implementation of laws, and the overall direction of the state. Strong, ethical
leaders can foster trust and cooperation, while poor leadership can lead to
corruption, inefficiency, and disillusionment among citizens (Pg. 70).
14. In what ways can states promote democracy? States can promote democracy
by ensuring free and fair elections, protecting civil liberties, and fostering an
independent judiciary. By encouraging political participation and civic
engagement, governments can create an environment where citizens feel
empowered to influence decisions and hold leaders accountable (Pg. 75).
15. What is the significance of accountability in governance? Accountability is
essential in governance as it ensures that public officials are answerable for their
actions. This principle helps to combat corruption, promotes transparency, and
builds public trust in government institutions, ultimately leading to more effective
governance (Pg. 78).
16. How do external factors influence the quality of governance? External
factors such as international relations, trade agreements, and global economic
conditions can significantly impact governance. Nations may adapt their policies
based on external pressures or incentives, affecting their governance quality and
stability (Pg. 72).
17. What challenges do developmental states face? Developmental states often
face challenges such as corruption, political instability, and external economic
pressures. These issues can undermine their capacity to implement effective
policies, leading to a decline in governance quality and public trust (Pg. 76).
18. How do social movements impact government policies? Social movements
can significantly influence government policies by raising awareness of social
issues, advocating for change, and mobilizing public opinion. Successful
movements can lead to reforms and shifts in policy priorities, reflecting the
demands and needs of citizens (Pg. 75).
19. What is the relationship between economic development and political
stability? Economic development and political stability are interrelated; a stable
political environment fosters economic growth, while economic development can
enhance political stability by improving living standards and reducing social
tensions. However, rapid economic changes can also lead to instability if not
managed properly (Pg. 74).
20. What are the implications of predatory states for international relations?
Predatory states can destabilize international relations by fostering conflict,
generating refugee crises, and promoting illicit activities such as human
trafficking. Their governance issues can complicate diplomatic relations and
hinder international cooperation on various global challenges (Pg. 77).
Chapter 5
1. How did primitive tribes coordinate economic activity?
Primitive tribes coordinated their economic activities primarily through tradition
and informal codes of conduct. These customs assigned specific social roles,
such as hunting or gathering, to individuals based on age, gender, or skill. Goods
were distributed to meet the basic needs of all productive members, often with
hunters sharing their prey with the community to ensure survival. The division of
labor and communal sharing were key aspects of the system. When norms were
violated, peer pressure and social consequences such as scolding or ostracizing
were used to enforce compliance. (Pg. 62)
2. Give two reasons why primitive tribes did not produce an economic
surplus.
Primitive tribes did not produce an economic surplus because of a lack of
motivation for surplus production and limited opportunities for trade and wealth
accumulation. Once their basic needs, such as food and shelter, were met, they
had little interest in performing additional work, as there was no practical use for
accumulating surplus goods. Additionally, wealth could not be stored in the form
of money, and there were few exotic items available through trade, resulting in
minimal incentive to produce beyond immediate needs. (Pg. 65)
3. During feudalism, name four obligations that lords had to their serfs.
During feudalism, the obligations of lords to their serfs included:

Defense: The lord provided protection against invading tribes.

Access to Workshops and Tools: Serfs were allowed to use the lord's
workshops and tools for their work.

Judicial Role: The lord served as a judge to settle disputes among the serfs.

Provision in Times of Famine: The lord shared his grain reserves with the serfs
during periods of famine. (Pg. 70)
4. Name two policies by which the Catholic Church sought to suppress
commerce during the Middle Ages.
The Catholic Church sought to suppress commerce during the Middle Ages
through:

Prohibiting Charging Interest on Loans: Declaring that charging interest was a
sin, which limited financial growth and lending practices.

Setting a "Just Price": Requiring merchants to sell goods at no more than the
cost of acquiring and transporting them, preventing profits and discouraging a
wealthy merchant class from rising. (Pg. 73)
5. Name three factors leading to the demise of feudalism.
The three factors leading to the demise of feudalism are:

Rise of Commerce: Increased demand for goods pressured feudal lords and
encouraged serfs to seek better opportunities in towns.

The Crusades: Disrupted production and caused financial strain on many lords,
shifting interests from feudal obligations to profit-making investments.

Natural Disasters: Events like the Great Famine and the Black Death resulted in
massive population loss, labor shortages, and increased bargaining power for
serfs. (Pg. 78)
6. What labor union in the U.S. advocated social anarchism?
The Industrial Workers of the World (IWW), founded in the United States in 1905,
advocated for social anarchism. The IWW, often referred to as the Wobblies,
promoted worker control of industries and sought to dismantle the capitalist
system in favor of a more equitable, worker-managed economy. (Pg. 82)
7. Describe the Tiebout effect.
The Tiebout effect describes how the presence of multiple communities offering
diverse lifestyle choices allows individuals to experiment and find a community
that best fits their interests and needs. This process of moving to more supportive
communities reflects the economic concept of choosing environments that align
with personal preferences and contributes to the efficient provision of public
goods. (Pg. 85)
8. What is institutional sclerosis?
Institutional sclerosis occurs when interest groups lobby for policies that benefit
them financially without contributing to productivity. This behavior creates
barriers, regulations, and subsidies that restrict resource flow, making the
economy less flexible and dynamic, much like clogged arteries hinder blood flow.
(Pg. 88)
9. What does the acronym NIMBY represent?
The acronym NIMBY stands for "Not in My Backyard" and refers to local
objections to decisions by government or businesses to locate an undesirable
facility or project in a particular community. For example, communities often
oppose having a nuclear power plant or toxic waste dump nearby. (Pg. 91)
10. What is the principle of subsidiarity?
The principle of subsidiarity is the concept that public responsibilities should be
handled by the smallest, most local level of organization capable of managing
them effectively. It advocates for decentralizing authority and functions from
higher levels of government to local entities or communities, ensuring tasks are
addressed as close to those affected as possible. (Pg. 95)
Extra
Here are your answers with page numbers from Clark:
1. Define Collective Action Problem – give an example. How could that be
fixed in the economy? Or in the state? Or in civil society?
o
It occurs when the pursuit of self-interest leads to worse results than could
be achieved by following the rules that are designed to “promote the
common good.” An example is the tragedy of the commons. To tackle the
problem, David Hume suggested that political institutions create laws that
would curb any form of opportunism. (pg. 4-5)
2. What does Clark say makes an economy successful? Why does Clark say
capitalism is the best system for making an economy successful?
o
Clark states that a successful economy requires surplus and must make
effective use of that surplus. Capitalism is cited as the best system for
making an economy successful because generating a surplus is
incentivized by competitive advantage and vice versa. (pg. 19-22)
3. List the 4 states in the classification of states. Which will lead to a
successful polity and why?
o
The four states are:

Failed state

Predatory state
o

Night-watchman state

Developmental state
The developmental state would lead to a successful polity because it
actively promotes the well-being of its citizens by providing infrastructure
to support economic development. (pg. 23-24)
4. What is the importance of civil society to a successful economy? To a
successful state? How can a community fail?
o
Civil society consists of networks of communities standing between the
individual and the larger, more impersonal operations of states and
markets. Examples of communities include neighborhoods, labor unions,
civic organizations, business associations, recreational sports teams, and
churches. In a vibrant civil society, communities effectively fulfill essential
functions. A community can fail when these networks weaken, leading to a
loss of social cohesion and the ability to address local needs. (pg. 25)
5. Are markets and capitalism the same thing? What prerequisites does
capitalism require?
o
No, markets and capitalism are not the same thing. Clark states that
"capitalism undoubtedly offers individuals a wider range of choices than
has existed in any previous economic system. At the same time, however,
the market channels human development in directions most compatible
with profitability and capital accumulation." (pg. 59)
6. What led to the rise of mercantilism? How did mercantilism interfere or
work against the rise of capitalism? How did it promote it?
o
Monarchs realized they needed to form alliances with merchants for
political and financial support, leading to mercantilism. This system was
based on creating harmony between the state and merchants, as
merchants paid taxes to fund the state, which in turn promoted business
interests. However, mercantilism interfered with capitalism by restricting
trade through policies favoring exports and limiting imports, yet it also
promoted it by creating the conditions for capitalist growth through the
establishment of colonial empires. (pg. 69)
7. In the conclusion to chapter 4, Clark says a developmental state is
necessary for a successful economic system, but they can easily become
predatory states. What policy reforms could prevent or reverse this
movement towards a predatory state?
o
Five strategies for preventing developmental states from deteriorating into
predatory states are:

Public funding for political campaigns

Increased transparency

Increased accountability

Redefining corporations and speech

Reforming media regulations (pg. 89-90)
8. What is institutional crowding out? In what ways are communities
vulnerable to institutional crowding out by markets and states?
o
Institutional crowding out occurs when state or market institutions replace
or undermine local community-based systems of support. Communities
are vulnerable to market crowding out as self-interested economic
behavior can replace community support systems. They are also
vulnerable to state crowding out when informal institutions are replaced by
formal laws and regulations. (pg. 112)
9. You can observe economic behavior and reciprocity in all 3 realms. Give an
example of economic behavior in the state, and civil society. Then an
example of reciprocity in the market and state.
o
Economic behavior in the state realm can be seen when citizens and
corporations pursue self-interest through the political process, seeking
maximum benefits with minimum costs in taxes and regulations. In civil
society, starting a business exemplifies economic behavior, benefiting the
individual while creating jobs for the community. Reciprocity in the market
is evident in market transactions, where the anonymous nature of trade is
mitigated by the trust developed within communities. In the state,
reciprocity is illustrated when citizens pay taxes in exchange for public
goods like education and security. (pg. 6-8)
What type of capitalism do you think the U.S. has now? Clark has neoliberal
capitalism ending in 2008. Do one of the other types fit us now, or do you need to
define a new one?

Following the end of neoliberal capitalism in 2008, the U.S. seems to be
experiencing a form of state capitalism where the government plays a more
significant role in the economy, especially in regulating and intervening in
markets to stabilize the economy after financial crises. This includes increased
regulatory oversight, support for certain industries, and efforts to address income
inequality. Alternatively, one could argue for a shift toward inclusive capitalism,
focusing on corporate social responsibility and stakeholder interests beyond
mere profit maximization. This shift reflects a growing awareness of social and
environmental impacts, aiming for a more equitable distribution of wealth and
resources. However, the extent to which either model fully represents the current
U.S. economic system is still a topic of debate and may necessitate defining a
new hybrid model that incorporates elements of both state involvement and
market-driven initiatives.
10. What type of capitalism do you think the U.S. has now? Clark has
neoliberal capitalism ending in 2008. Do one of the other types fit us now,
or do you need to define a new one?

The U.S. currently exhibits traits of state capitalism, with increased government
intervention and regulation post-2008 to stabilize the economy. Alternatively, it
may be shifting toward inclusive capitalism, emphasizing corporate social
responsibility and addressing income inequality. Defining a new hybrid model that
incorporates elements of both could be necessary, reflecting the complexities of
the current economic landscape.
Collective Action problem
1. Collective Action Problem in the Economy
Example: Insider trading in the stock market is a classic example of a collective action
problem, as it undermines market integrity and trust.
Institution: Regulatory bodies, such as the Securities and Exchange Commission
(SEC) in the U.S., have evolved to combat insider trading through stringent regulations
and enforcement.
Opportunism Example: An individual with access to confidential information about a
company might trade stocks based on that information to secure personal financial
gains, thereby acting against the collective interest of fair market practices.
2. Collective Action Problem in the Polity
Example: The challenge of getting citizens to voluntarily pay for public goods, such as
national defense or public parks, illustrates a collective action problem, as many benefit
without contributing.
Institution: Taxation systems and public funding mechanisms have been established to
ensure that citizens contribute to the funding of public goods.
Opportunism Example: A person might choose to free-ride on the contributions of
others, enjoying the benefits of public goods without paying taxes, thereby taking
advantage of the system.
3. Collective Action Problem in Civil Society
Example: The difficulty of obtaining service at a busy business, like a deli counter or
shoe store, can create a collective action problem, as customers may try to jump the
queue.
Institution: Queuing systems or reservation methods have been established to
organize and streamline service, ensuring fairness in customer service.
Opportunism Example: A customer might try to skip ahead in line or distract the staff to
receive faster service, seeking personal gain at the expense of others waiting.
Impact of Dominating Economy on Polity and Civil Society
A dominating capitalist economy can undermine the polity by leading to increased
inequality, where powerful corporations influence political decisions to favor their
interests, resulting in a weakened democratic process and a potential shift toward a
predatory state. This scenario could foster disenfranchisement and apathy among
citizens, making it difficult for them to engage in political processes. To counteract this,
institutions like campaign finance reform and strict lobbying regulations could help
maintain political integrity. In civil society, a capitalist economy may prioritize profit over
community welfare, leading to diminished social ties and weakened community
organizations. This erosion can create social fragmentation, making individuals feel
isolated and less likely to engage in communal activities. Institutions such as community
development programs and social safety nets can be established to strengthen social
bonds and promote civic engagement.
Impact of Predatory State on Economy and Civil Society
A predatory state can severely harm the economy by stifling innovation and
entrepreneurship through excessive regulation and corruption, leading to reduced
economic growth and a lack of investment. This environment often results in a
stagnating economy where resources are misallocated and concentrated among the
elite. To mitigate this, institutions like transparent regulatory bodies and anti-corruption
agencies could foster a fair economic landscape. Additionally, a predatory state can
negatively impact civil society by suppressing dissent and eroding trust in community
organizations, making it difficult for citizens to mobilize for collective action. This
suppression can lead to widespread disillusionment and apathy, as communities feel
powerless against state control. Institutions like independent civil rights organizations
and community advocacy groups could empower citizens and ensure their voices are
heard.
Impact of Erosion of Community on Economy and Polity
The erosion of community can negatively affect the economy by reducing social capital,
which is essential for fostering trust and collaboration among individuals, leading to
lower productivity and innovation. When community ties weaken, individuals may focus
solely on self-interest, undermining collective efforts that drive economic success. To
combat this, institutions such as community centers and local cooperative organizations
can encourage social interaction and collaboration. In the polity, weakened community
ties can diminish civic engagement, leading to lower voter turnout and participation in
political processes. This disengagement can result in a lack of representation and
responsiveness from government entities. Institutions like grassroots organizations and
civic education programs can promote community involvement and ensure that citizens
remain active in shaping their political environment
in brief
ChatGPT said:
ChatGPT
Markets vs. Community
Markets are economic systems focused on buying and selling goods and services,
driven by supply and demand. They prioritize individual profit, efficiency, and
competition, often resulting in impersonal transactions.
Community, in contrast, refers to groups of individuals bound by shared interests and
social ties. Communities emphasize cooperation, mutual support, and collective wellbeing, fostering personal relationships and a sense of belonging.
The key difference lies in motivation: markets seek individual gain, while communities
prioritize the welfare of all members. Balancing both is essential for a healthy society
that promotes economic growth and social cohesion