Econ Study Set
percentage of the total national income is owned by the poorest 40%
12%
percentage of income is earned by the poorest 20% of households in the United States
3.2%
Externality
A side effect of an activity that affects bystanders whose interests are not taken into account, not a price change
risk spreading
Breaking a big risk into many smaller risks so that it can be spread over many people
Natural Barrier
Ex. control of resources
Coase Theorem
If bargaining is costless, and property rights are clearly established and enforced, then externality problems can be solved through private bargaining.
social insurance
It is government-provided financial funding to households to compensate for bad outcomes such as unemployment, illness, disability, or outliving their savings, benefits based on past earnings
marginal social cost
Marginal private cost plus marginal external cost
price aggregate information
The actions of many buyers and sellers impact the price in the market.
The socially optimal outcome
The outcome that is most efficient for society as a whole — including the interests of buyers, sellers, and bystanders
Free-rider problem
When someone can enjoy the benefits of a good without bearing the cost
subsidy
a government payment designed to encourage particular purchases or productive activities.
learning by doing
a term economists use to explain why specific industries can become more efficient over time
prices
act as signals, incentives, information
Markets
allocate resources, goods, and services.
Binding price floor
always above equilibrium price, leads to surplus
Binding Price Ceiling
always below the equilibrium price, Leads to shortage, the max price that a seller can charge in a market
trade cost
an extra cost incurred as a result of buying or selling a good abroad rather than domestically.
internal markets
are organized within a company to buy and sell scarce resources.
gains from trade
benefits that come from reallocating resources, goods, and services to better uses.
Marginal private cost
cost paid by the seller in producing one additional unit of output.
Efficient outcomes
depended on perfect competition, well-informed sellers, well-informed buyers
positive analysis
describes what is happening and makes predictions based on identified relationships
efficiency wage
economic theory that could justify my employer's willingness to pay above the market rate
economic surplus
equals marginal benefit minus marginal cost, is the area between the supply curve and the demand curve to the left of quantity sold, is consumer surplus plus producer surplus.
Sources of Market Failure
externalities, irrationality, market power
marginal external benefit
extra benefit accruing to bystanders as a result of one extra unit of output.
statutory burden of a tax
government-designated burden of a tax payment.
Human Capital
has to do with education and training and the choice to invest in those things
nonexcludable good
it is difficult to prevent someone from using or having access to the good.
Official poverty level
measurement includes cash transfers but not in-kind transfers
The rational rule for markets
more if the unit's marginal benefit exceeds its marginal cost.
A samaritan's dilemma
occurs when those who collect welfare benefits are then discouraged from working.
rival good
one person's use of it prevents others from using it.
In-kind transfer
payment made in something other than cash, if included in US poverty stats the poverty rate would be lower
prediction market
payoffs are linked to whether an uncertain event occurs.
efficient quantity
prevails in a market when the market yields the largest possible economic surplus.
negative income tax
provides people below a certain income level with money. Receive money from govt., ex: the earned income tax credit
willingness to pay
reflects ability to pay as well as marginal benefit.
Rational Rule for Sellers
sell until marginal cost equals marginal revenue, until no more producer surplus
Social insurance programs
social security, worker's comp, medicare
Sources of comparative advantage
specialized skills, mass production, abundant inputs
consumer surplus
the area above the price and below the demand curve, Marginal benefit minus price equals
producer surplus
the area above the supply curve and below the price. Only occurs when goods are sold at a price above marginal cost.
Incidence of a tax
the division of the economic burden of a tax between buyers and sellers.
deadweight loss
the economic surplus at the efficient quantity minus the economic surplus at the actual quantity.
Globalization
the increasing economic, political, and cultural integration of different countries.
Normative analysis
what should happen or what ought to be, and it involves value judgments.
nonrival good
when one person's use of the good does not reduce another person's ability to use the same unit of the good.
Maximizing consumer satisfaction
you must get the most satisfaction out of every dollar you spend.