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Chapter 5- Public Spending and Public Choice
Econ
33
Economics
Undergraduate 1
06/11/2012

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Term
In a price system, a buyer can____ _____ ___ _____
Definition
Decide what to buy
Term
market failures
Definition
where the market economy leads to too few or too many resources going to a specific economy activity
Term
externality
Definition
result of an economic activity that spills over into a third party.
ex: pollution
Term
3rd parties
Definition
those who are not directly involved in an activity or transaction
Term
property rights
Definition
rights of an owner to use and sell
Term
when there are external costs, the market will tend to ____ ____
Definition
over-allocate resources
Term
overallocating resources
Definition
over using resources
Term
underallocating resources
Definition
under using resources
Term
how the government can correct negative externalities
Definition
1. special taxes and legislative regulation
2. prohibition
Term
effluent fee
Definition
charge to a polluter that allows him to put pollution in the air
ex: also called a pollution tax; a type of special tax to deal with negative externalities
Term
how the goverment can correct positive externalities
Definition
1. financing the production
2. subsidies
3. regulation
Term
examples of positive externalities
Definition
ex: gardens, highways, education
Term
examples of negative ecternalities
Definition
ex: pollution, congested highways, hazardous waste
Term
4 economic functions of the goverment
Definition
1. providing a legal system
2. promoting competition
3. providing public goods
4. ensuring economy wide stability
Term
antitrust legislation
Definition
law that restricts the forming of monopolies
Term
monopoly
Definition
a firm that determines the market price of a good
Term
private goods
Definition
goods that can be used by only one person at a time
ex: dvd players, cars
Term
principle of rival consumption
Definition
competition to use the private good
ex: competing for the channel box
Term
public goods
Definition
goods that can be used jointly and many people
ex: public pool, library
Term
2 characteristic of public goods
Definition
1. public goods can be used by many people; no additional opprontunity cost
2. it is hard to make a collection system for a public system for a public good on the basis of how much others use it
Term
true public goods must be provided by_____ _______
Definition
the goverment
Term
free rider problem
Definition
when people presume that others will pay for public goods so they dont have to pay
Term
goverment sponsered good
Definition
good that is deemed socially desirable thoguht the political process
ex: stadiums, mesuems, plays, concerts
Term
goverment inhited good
Definition
good deemed undesirale though the policial process
ex: cocain, herione, weed
Term
transfer payments
Definition
payments made to individuals for which no services or goods are rendered in return
ex: social security and disability benefits
Term
transfers in kind
Definition
payments that are in form of goods and services
ex: food stamps, public housing, medical care
Term
collective decision making
Definition
how voters, politicians and other parties act and how these actions influence nonmarket decisions
Term
theory of public choice
Definition
study of collective decision making
Term
incentive structure
Definition
system of rewards and punishments for each person
Term
goverment or political goods
Definition
goods provided by public sector
Term
expropriation
Definition
if you dont pay your taxes, your bank account and other things can be seized by uncle sam!
Term
majority rule
Definition
collective decision making where 50 percent of vote wins
Term
proportial rule
Definition
some votes from people count more than other votes
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