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Microeconomics Unit 5 Vocab
Externalities
45
Economics
01/04/2012

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Term
Private Goods
Definition
-Produced through the competitive market system. -Goods offered for sale in stores/shops
Term
Rivalry 
Definition
One person buys/consumes a product, it is not available for another person to buy/consume
Term
Excludability
Definition
Sellers can keep people who do not pay for a product from obtaining its benefits. Physically exclude.
Term
Public Goods
Definition
Distinguished by nonrivalry and nonexcludability
Term
Nonrivalry
Definition
One person's consumption of a good does not preclude consumption of the good by others. Everyone can obtain the benefit of it
Term
Nonexcludability
Definition
There i sno effective way of excluding individuals from the benefit of a good. If it is physically impossible to restrict
Term
Free-Rider Problem
Definition
Once a producer has provided a public good, everyone including nonpayers can obtain the benefit
Term
Cost-Benefit Analysis
Definition
Used to decide wheter to provide a particular public good and how much of it to provide.
Term
Marginal-Cost-Marginal-Benefit Rule
Definition
Tells us which plan provides the maximum excess of total benefits over total costs.
Term
Externalities
Definition
Cost or beneift accruing to an individual or group, that is external to a market transaction
Term
Negative Externalities/Example
Definition

-Breathing polluted air, second-hand smoke

-There is an overproduction of the related product and an overallocation of resources to this product at a low price

Term
Positive Externalities/Example
Definition

-The benefit of having everyone else cured against some disease 

-There is an underporduction and underallocation of resources at also a low price

Term
Coase Theorem
Definition
Government is not needed to remedy external costs or benefits where property ownership is clearly defined, the number of people involved is small, and bargaining costs are negligible
Term
Government Intervention to Externalities
Definition

-Can use direct controls and taxes to counter negative externalities

-Can provide subsidies or public goods to deal with positive externalities

Term
Subsidies to buyers
Definition
Used to correct the underallocation of resources by giving a reward to consumers of the product
Term
Subsidies to producers
Definition
A specific tax in reverse. Payments from the government that decrease producers' costs.
Term
Government Provision
Definition
Where the Government decides to provide the product as a public good.
Term
Tragedy of the Commons
Definition
The air, rivers, lakes, oceans, and public lands are all objects for pollution because the rights to use those resources are held "in common" by society
Term
Market for Externality Rights
Definition
A market-based approach to correcting negative externalities
Term
Cap-and-Trade Program
Definition
An appropriate pollution-control agency determines the amount of poulltants that firms can discharge into the air while maintaining the air quality at some level, then companies trie to lower their emissions so they can trade the rest of their cap to other companies to reduce
Term
Optimal Reduction of an Externality
Definition
Occurs when society's marginal cost and marginal benefit of reducing that externality are equal. 
Term
Climate-Change Problem
Definition
That the earth's surface has warmed over the last century by about 1 degree, with more rapid warming in the last 20 years. Suggesting that human activity is a contributing factor
Term
Assymetric Information
Definition
Unequal knowledge possessed by the parties to a market transation
Term
Moral hazard Problem
Definition
The tendency of one party to a contract or agreement to alter her or his behavior, after the contract is signed, in ways that could be costly to the other party.
Term
Adverse Selection Problem
Definition
Arises when information known by the first party to a contract or agreement is not known by the second and  the second party incurs major costs
Term
Logrolling
Definition
The trading of votes to secure favorable outcomes
Term
Paradox of Voting
Definition
Situation in which society may not be able to rank its preferences consistently through paired-choice majority voting
Term
Median-Voter Model
Definition
Under majority rule and consistent voting preferences, the median voter wil in a sense determine the outcomes of elections
Term
Public Choice Theory
Definition
Pro-Market, Anti-Government
Term
Government Failure
Definition
Inefficiency due to certain characteristics of the public sector
Term
Special-Interest effect
Definition
Any outcome of the political process whereby a small number of people obtain a government program or policy that gives them large gains at the expense of a much greater group who individually suffer small losses
Term
Earmarks
Definition
Specifivally designated authorizations of expenditure
Term
Rent Seeking
Definition
The appeal to government for special benefits at taxpayers' or someone else's expense
Term
Benefits-Received Principle
Definition
Taxation that asserts that households and businesses should purchase the goods and services of government in the same way they buy other goods, those who benefit most from public goods should pay the taxes necessary to finance them
Term
Ability-To-Pay Priciple
Definition
Tasation that asserts that the tax burden should be apportioned according to taxpayers' income and wealth.
Term
Progressive
Definition
Tax's average rate increases as income increasices
Term
Regressive
Definition
Tax's average rate declines as income increases. Suppose tax is $20 for everyone but that 20 could mean alot for a poor person and little for rich
Term
Proportional
Definition
Tax's average rate remains the same regardless of size of income
Term
Progressive Tax Examples
Definition
Personal Income Tax
Term
Proportional Tax Examples
Definition
Corporate Income Tax
Term
Regressive Tax Examples
Definition
Sales Taxes, Payroll Taxes, Property Taxes
Term
Tax Incidence
Definition
The resting place of a tax
Term
Efficiency Loss of the Tax
Definition
Society's sacrifice of net benefit, because the tax reduces production and consumption of the product below their levels of economic efficiency
Term
Redistributive Goals
Definition
Government may wish to impose progressive taxes as a way to redistribute income. Such as taxes on luxury items
Term
Reducing negative Externalities
Definition
Analysis of the efficiency loss of a tax assumes no negative externalities arising from either the production or consumption of the product in question