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Econ test 2
Study for test2
37
Economics
Undergraduate 1
04/14/2012

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Term
Define Externality
Definition
The impact of one persons actions on the well being of a bystander
Term
Why do externalities occur?
Definition
Occur because something* decision- maker fails to take account of the external effects of his or her own behavior
Term
When no externality
Definition
Qmrkt is efficient
Term
Qopt
Definition
determined by the optimal amount of the product from the standpoint of society as a whole
Term
Q mrkt
Definition
Is determined by the quantity produced and consumed in the market equilibrium
Term
Demand curve
Definition
the value to buyer
Term
supply curve
Definition
the costs of sellers
Term
The coase theorem
Definition
if private parties can bargain w/o cost over the allocations of resources, they can sole the problem of externalities on their own.
Term
Coase argues?
Definition
that the gov should let people solve externalities on their own.
Term
How do you determine the socially optimal outcome in a coasian bargaining problem?
Definition
the benefit of the settlement to the offended party must exceed the cost to that party.
Term
Define transactions cost? Give an example.
Definition
the cost that parties incur process of agreeing to and following through on bargin. if the benefit less then the cost, then they might leave it alone.
Term
Neg externality
Definition
Qmrt is to large, tax,
Term
Positive externality
Definition
Qmrt is to small, substitise
Term
pigovian tax
Definition
corrective tax, deals with neg externalities. does because it taxes them so they reduce pollution, 2 companies, river, 300 tons
Term
is regulation a good methon of dealing with neg production exter?
Definition
No, due to they are regulated and they dont add any economic help
Term
proportional tax
Definition
A tax which high and low income tax payers pay the same fraction of income.
Term
progressive tax
Definition
A tax for which high income-tax payers pay a larger fraction of their income, then low income payers
Term
benefits principle
Definition
the idea that people should pay taxes based on the benefits they receive from the gov services.
Term
Ability to pay principle.
Definition
The idea that taxes should be levied on a person according to how well that person can shoulder the burden
Term
Vertical equity
Definition
tax payers with greater ability to pay, should pay more.
Term
Horizontal equity
Definition
tax payer with similar abilities, should pay the same amount.
Term
Regressive tax
Definition
a tax for which high income tax payers pay a smaller fraction of their income other than low income tax payers
Term
Lump sum tax
Definition
A tax that is the same amount for everyone
Term
Flat tax
Definition
certain amount of income is not taxed, all additional income is taxed at the same marginal rate.
Term
Rival in consumption
Definition
one person use of the good reduces another persons ability to use it.
Term
excludable
Definition
people can be prevented from using the good.
Term
private goods
Definition
goods that are both excludable and rival, in consumption... Backpack, buy one theres less for others.
Term
Excludable and non rival goods
Definition
Muse, pay to get in, but does not take away from others.
Term
Pure public goods
Definition
neither excludable nor rival, cant be stopped from getting and is still same amount. Air...
Term
Free rider
Definition
a person who gets good without paying for it... night watch, two people pay third gets without paying.
Term
What is TNB
Definition
Total net benefit. TNB-TC "Total cost" is greater than 0
Term
common resources
Definition
goods that are rival in consumption, but not excludable. Picking up a rock, can not be stopped, but there is less of it.
Term
Tragedy of the commons
Definition
a parable that illustrates why common resources are used more that is desirable from standpoint of society as a whole
Term
Major state and local tax expenditures
Definition
education, welfare, transportation.
Term
Major fed expenditures
Definition
Social security,defense, income security,medicare,health(medicaid), Net interest, other...
Term
Major fed taxes
Definition
Personal income,pay roll tax rates, corporate tax...
Term
Major state taxes
Definition
Sales tax, property tax, personal income tax, corporate income tax.
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