Term
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Definition
| A tax designed to induce private decision makers to take account of the social costs that arise from a negative externality. |
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Term
| Effect of externalities on quantity produced |
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Definition
| Negative externalities lead markets to produce a larger quantity than is socially desirable. Positive externalities lead them to produce a smaller quantity than designed. |
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Term
| Effects of Positive Externalities on the Market |
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Definition
| Demand increases (shifts rightO |
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Term
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Definition
| When members of an oligopoly fail to cooperate with each other even though it would be mutually beneficial. |
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Term
| Internalizing the Externality |
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Definition
| Incentives so that people take account fo the external effects of their actions. |
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Term
| Effect of Negative Externality on the Market |
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Definition
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Term
| Examples of Externalities |
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Definition
Exhaust from Cars - Negative
Restored Historic Buildings - Good
Research-positive |
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Term
| Compensating Differential |
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Definition
| A difference in wages that arises to offset the nonmonetary characteristics of different jobs. |
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Term
| The uncompensated impact of one persons actions the well being of a bystander. Can be positive or negative. |
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Definition
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Term
| Side Effects of Antipoverty Policies |
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Definition
| Since financial assistance declines asa income rises the poor often face very high effective marginal tax rates, which discourage poor families from escaping poverty on their own. |
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Term
| Inequality of Income Distribution |
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Definition
| Richest 20% families earn 10X as much as the 20% smallest. |
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Term
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Definition
| Require any person collecting government benefits to accept a government provided job. |
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Term
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Definition
| A tax system that collects revenue from high income households and gives subsidies to low income households. |
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Term
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Definition
| government programs that supplement the incomes of the needy. Negative generates incentives for people to be needy. |
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Term
| Policies to Reduce Poverty |
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Definition
welfare
negative income tax
in kind transfers
anti poverty programs
work incentives |
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Term
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Definition
| Political philosophy according to which the government should punish crimes and enforce voluntary agreement but not redistribute income. |
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Term
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Definition
| Government policy aimed at protecting people against the risk of adverse events. |
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Term
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Definition
| The claim that the government should aim to maximize the well being of the least well off person in society. (John Rawles) |
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Term
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Definition
| The political philosophy according to which the government should choose policies deemed as just as evaluated by an impartial bystander. |
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Term
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Definition
| The measure of satisfaction or happiness. |
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Term
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Definition
| The political philosophy according to which the government should choose policies to maximize the total utility of society. |
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Term
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Definition
| A person's normal income. |
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Term
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Definition
| The regular pattern of income variation over one's life. |
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Term
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Definition
| Transfers to the poor given in the form of goods/services. |
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Term
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Definition
| An absolute level of income set by the federal government for each family size below which a family is deemed to be in poverty. |
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Term
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Definition
| Percentage of the population whose family income falls below the poverty line. |
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Term
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Definition
| Market structure with few sellers that offer similar or identical products. |
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Term
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Definition
| The study of how people behave in situations in which a person must consider how others react to their action when deciding what to do. |
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Term
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Definition
| Oligopoly with two members. |
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Term
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Definition
| An agreement among firms in a market about quantities to produce and prices to charge. |
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Term
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Definition
| A group of firms acting in unison. (collusion) |
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Term
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Definition
| A situation in which economic factors interacting with one another each choose their best strategy given the strategies that all the other actors have chosen. |
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Term
| High Number of Sellers in an Oligopoly |
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Definition
| Market looks more like a competitive market as the number of sellers increases. Price approaches marginal cost. Quantity approaches social optimum. |
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Term
| Oligopolists acting Individually |
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Definition
| Produce at higher levels increasing quantity and decreasing prices. |
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Term
| Oligopolies Maximize profit by |
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Definition
| forming a cartel and acting like a monopolist. |
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Term
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Definition
| Used by policymakers to prevent oligopolies from engaging in behavior that reduces competition. |
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Term
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Definition
| Inputs used to produce goods and services. Ex. Land labor capital entrepreneurship |
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Term
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Definition
| above equilibrium wages paid by firms to increase worker productivity. |
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Term
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Definition
| A worker association that bargains with employers over wages and working conditions. |
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Term
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Definition
| The accumulation of investments of people, such as education and on the job training. |
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Term
| Discrimination in Competitive Markets |
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Definition
| Non-discriminatory firms will be more profitable be more profitable. Profit maximizing behavior limits discrimination. |
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Term
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Definition
| A parable that illustrates why common resources are used more than is desirable from the standpoint of society as a whole. |
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Term
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Definition
| The relationship between the quantity of inputs used to make a good and the quantity of of outputs of that good. |
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Term
| Marginal Product of Labor |
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Definition
| The increase in the amount of output from an additional unit of labor. |
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Term
| Diminishing Marginal Product |
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Definition
| The property whereby the marginal product of an input declines as the quantity of the input increases. |
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Term
| Value of Marginal Product |
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Definition
| The marginal product of an input times the price of the output. |
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Term
| Causes for a shift in the labor demand curve |
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Definition
Change in price
Technological Change
Supply of other factors |
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Term
| Causes for a shift in the Labor supply curve |
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Definition
change in tastes
change in alternative opportunities
immigration |
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Term
| Equilibrium in the Labor Market |
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Definition
Wage equals the value of the marginal product of labor
Wage adjusts to balance the supply and demand for labor. |
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Term
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Definition
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Term
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Definition
| The equipment and structures used to produce goods and services. |
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Term
| Derived Demand for Factors of Production |
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Definition
| demand that comes from firms that use the factors to produce goods services. Profit maximizing firms hire each factor to the point where value of marginal product equals price. |
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Term
| Who provides public goods? |
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Definition
| Government they make their decision about quantity on the cost benefit analysis. |
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Term
| Important Common Resources |
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Definition
Clean air and water
Congested roads
Fish whales and other wildlife |
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Term
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Definition
| The offering of different opportunities to similar individuals who differ only by race sex ethnic group age or other personal characteristics. |
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Term
| Wage in Relation to Human Capital |
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Definition
| More human capital means higher wages, less human capital means lower wage. |
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Term
| Reasons for above equilibrium wages |
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Definition
minimum wages
unions
efficiency wages |
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Term
| Importance of Property Prices |
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Definition
| If property rights are not established, the market will not allocate resources efficiently. Also externalities are a result of poorly established property rights. |
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Term
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Definition
| Strategy that is best for a player in a game regardless of the strategies chosen by other players. |
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Term
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Definition
| The organized withdrawal of labor from a firm by a union. |
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Term
| A change in supply of one factor effects... |
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Definition
| All of the factors of production because they each depend on the quantities of all the others. |
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Term
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Definition
| A study that compares the costs and benefits to society of providing a public good. |
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Term
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Definition
National Defense
Basic Research
Fighting Poverty |
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Term
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Definition
| A person who receives the benefit of a good but avoids paying for it. |
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Term
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Definition
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Term
| Good Produced by a Natural Monopoly |
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Definition
| Good that is excludable but not rival in consumption. |
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Term
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Definition
| Goods that are rival in consumption but nonexcludable. |
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Term
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Definition
| Goods that are neither excludable nor rival in consumption. |
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Term
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Definition
| Goods that are excludable and rival in consumption. |
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Term
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Definition
| The property of a good whereby one person's use diminshes other people's use/ |
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Term
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Definition
| The property of a good whereby a person can be prevented from using it. |
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Term
| Private Solutions to Externalities |
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Definition
Internalize the externality by the Margins
Negotiate a contract
Charities |
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Term
| Why Private Solutions Don't Always Work |
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Definition
Transaction Costs
Negotiations breakd own
Number of parties interested is large so coordination is costly. |
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Term
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Definition
| Costs that parties incur in the process of agreeing to and following through on a bargain. |
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Term
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Definition
| The proposition that if private parties can bargain without cost over the allocation of resources, they can solve the problem of externalities of their own. |
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Term
| Market Based Strategies to Limit Pollution |
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Definition
Corrective Tax
Tradable Pollution Permits (Cap and Trade) |
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Term
| Four Principles of How Individuals Make Decisions |
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Definition
People Face Tradeoffs
The Cost of something is what you give up to get it (Opportunity Cost)
Rational People Think at The Margin
People Respond to Incentives |
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Term
| Three Principles Concerning How People Interact with one Another |
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Definition
Trade Can make Everyone better off
Markets are usually a good way to organize economic activity
Governments can sometimes improve market outcomes |
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Term
| Three Principles Concerning the Workings of the Economy as A Whole |
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Definition
A country's standard of living depends on its ability to produce.
Prices rise when government prints too much money.
Society Faces a Short-Run trade-off between inflation and unemployment. |
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Term
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Definition
| The limited nature of society's resources |
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Term
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Definition
| The study of how society manages its scarce resources. |
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Term
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Definition
| The property of society distributing wealth uniformly among its members. |
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Term
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Definition
| The property of society getting the most it can from its scarce resources. |
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Term
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Definition
| Whatever one must give up in order to obtain some item. |
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Term
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Definition
| People who systematically and purposefully do the best they can to achieve their objectives. |
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Term
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Definition
| Small incremental adjustments to a plan of action |
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Term
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Definition
| Something that induces a person to act. |
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Term
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Definition
| An economy that allocates resources through the decrentralized decisons of many firms and households as they interact in markets for goods and services. |
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Term
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Definition
| The ability of an individual to own and exercise control over scarce resources |
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Term
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Definition
| A situation in which the ability of a single economic actor has a substantial influence in market prices. |
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Term
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Definition
| The quantity of goods and services produced from each unit of labor input. |
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Term
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Definition
| an increase in the overall level of prices in the economy |
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Term
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Definition
| fluctuations in economic activity, such as employment and production. |
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Term
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Definition
| A visual model of the economy that shows how dollars flow through markets among households and firms. |
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Term
| Production Possibilities Frontier |
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Definition
| A graph that shows the combination of output that the economy can possibly produce given the available factors of production and the available production technology. |
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Term
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Definition
| the ability to produce a good using fewer inputs than another producer. |
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Term
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Definition
| The ability to produce a good at a lower opportunity cost than another producer. |
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Term
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Definition
| Goods produced abroad and sold domestically. |
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Term
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Definition
| Goods produced within and sold abroad. |
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Term
| Variables that Shift the Demand Curve |
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Definition
Income
Price of substitutes
Price of Compliments
Tastes
Expectations
Number of Buyers |
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Term
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Definition
| Rise in one price means a higher demand for the other product. |
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Term
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Definition
| A fall in one price leads to a higher demand for the other product. |
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Term
| Variables that Shift supply Curve |
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Definition
Input prices
Technology
Expectations
Number of Sellers |
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Term
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Definition
| A good for which, other things equal, an increase in income leads to an increase in demand. |
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Term
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Definition
| A good for which, other things equal, an increase in income leads to a decrease in demand. |
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Term
Price Elasticity of Demand
Elasticity |
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Definition
| Percentage Change in Quantity Demanded / Percentage Change in Price |
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Term
| Price of Elasticity of Demand |
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Definition
(Q2-Q1) / [(Q2+Q1) / 2]
(P2-P1) / [(P2+P1) / 2] |
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Term
| Goods With Close Substitutes |
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Definition
| tend to have more elastic demand |
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Term
| Necessities tend to have more |
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Definition
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Term
| Goods Elasticity in the Long Run |
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Definition
| They tend to be more elasticity in the long run. |
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Term
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Definition
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Term
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Definition
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Term
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Definition
| Unit elastic. A change in quantity demanded equals a change in supply demanded. |
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Term
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Definition
Percentage Change in Quantity Demanded
Percentage Change in Income |
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Term
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Definition
Percentage Change in Quantity Demanded of Good1
Percentage Change in Quantity Demanded of Good2 |
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Term
| Price Elasticity of Supply |
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Definition
Percentage Change in Quantity Supplied
Percentage Change in Price |
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Term
| Perfectly Inelastic Curve |
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Definition
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Term
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Definition
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Term
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Definition
| A measure of the responsiveness of quantity demanded or quantity demanded or quantity supplied to one of its determinants. |
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Term
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Definition
| A legal maximum on the price at which a good can be sold. |
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Term
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Definition
| A legal minimum on the price at which a good can be sold. |
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Term
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Definition
| The manner in which the burden of a tax is shared among participants in the market. |
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