3- Man pursues self-interest and all yield to let him do as he wishes. 2- Man cooperates with others and all parties enjoy a portion of their self interest. 1- Both parties compete are in a state of war 0- Man yields to other

Player 2 Player 1 Self Interest Cooperation 1, 1 O,3 3,0 2, 2

Government (Authority/Power) People (Freedom/Power) Self Interest Cooperation RevolutionAnarchy Dictator Constitution Limited Government Balanced Equilibrium

Mutual and Voluntarily exchange

Stag hunt Imagine that you live in a primitive society where your only source of meat is to hunt. In the nearby forest live two animals that are hunted by society, the stag and the rabbit. Your only weapons are bows and arrows or spears and therefore you must get within close proximity to successfully kill your food. Individually the rabbit is easily killed but it takes the collective group to kill the stag. Only by working as team can the village eat venison and if one person defects (hunts rabbit) the entire village will suffer. 1. What do you do when you see a rabbit cross your path? Remember your family needs to eat. Why is it important to think about what the other hunters will do? 2. What will others do? Hint what do others think that you will do? 3. Should society force the hunters to hunt stag? How is this a trade-off? 4. What is a Nash equilibrium? 5. Why are contracts important? 6. How important is reputation? 7.If a hunter knows that there will be a future hunt how may it change his decision? 8.Which is most efficient? Reputation or contracts/laws? Why?

Player 2 Player 1 Stag Rabbit 5, 50, 2 2, 0 1, 1

Government (Authority/Power) People (Liberty/Power) Cooperate Self Interest 5, 50, 2 2, 0 1, 1

The Constitution is a coordinated document The Constitution is not contract that needs to be enforced, it is more like a coordinated agreement between liberty and authority. It is in the best interest each player to both pursue their self interest and to limit their own self interest.

Justice Equilibrium Balance Order Unite Provide Protect Securing Liberty Life Liberty Property Authority Government Group Equality Liberty Individual Freedom Self Interest

So is Self Interest A positive natural resource?- Adam Smith Or War?- Thomas Hobbes Or something else? Does the purpose of government compete with or cooperate with the purpose of any economic system? The Preamble Purpose of Economic Systems- To allocate scarce resources that have alternative uses to their most useful place. Write 1 paragraph

Examples of Prisoner Dilemmas Mitt vs Newt – Republic Primaries Budget Crisis Price wars Paradox of thrift Government and the people Sports being a team member Tragedy of the commons Traffic Fishing rights Climate Resources Congress and spending

Free Market Principles Private Property Freedom of Enterprise Motive of Self Interest Competition System of Markets and Prices Limited Government Government Intervention Maintaining Legal and Social Framework Maintaining Competition Providing Public Goods and Services Redistributing Income Correcting for Externalities Stabilizing the Economy Correct Market Failures Authority Government Group Equality Liberty Individual Freedom Self Interest Justice Equilibrium Balance

Government Intervention Maintaining Legal and Social Framework Example: Create laws and provide courts, provide information and services to help economy function better, establish a monetary system, define and enforce property rights. Maintaining Competition Example: Create and enforce antitrust laws; regulate natural monopolies. Providing Public Goods and Services Example: Provide goods and services that markets are unable or unwilling to provide, such as national defense. Redistributing Income Example: Higher income tax rates for rich than for poor, provide social security, and aid to dependent children, Medicare, Medicaid. Correcting for Externalities Example: Taxes to reduce negative externalities, such as environmental pollution; subsidies to encourage positive externalities, such as education. Externalities exist when some of the costs or benefits associated with the production or consumption of a product "spill over" to third parties other than the direct producer or consumer of the product. Stabilizing the Economy Example: Use government budgets and/or the money supply to promote economic growth, control inflation, and reduce unemployment.