ECON-Chapter 5 Public Spending and Public Choice

effluent fee

A charge to a polluter that gives the right to discharge into the air or water a certain amount of pollution; also called a pollution tax

majority rule

A collective decision-making system in which group decisions are made on the basis of more than 50 percent of the vote. In other words, whatever more than half of the electorate votes for, the entire electorate has to accept.

externality

A consequence of an economic activity that spills over to affect third parties. Pollution is an externality.

proportional rule

A decision-making system in which actions are based on the proportion of the "votes" cast and are in proportion to them. In a market system, if 10 percent of the "dollar votes" are cast for blue cars, 10 percent of automobile output will be blue cars.

monopoly

A firm that can determine the market price of a good. In the extreme case, a monopoly is the only seller of a good or service.

government-sponsored good

A good that has been deemed socially desirable through the political process. Museums are an example.

government-inhibited good

A good that has been deemed socially undesirable through the political process. Heroin is an example.

free-rider problem

A problem that arises when individuals presume that others will pay for public goods so that, individually, they can escape paying for their portion without causing a reduction in production

market failure

A situation in which the market economy leads to too few or too many resources going to a specific economic activity.

government/political goods

Goods (and services) provided by the public sector; they can be either private or public goods

public goods

Goods for which the principle of rival consumption does not apply and for which exclusion of non paying consumers is too costly to be feasible. They can be jointly consumed by many individuals simultaneously at no additional cost and with no reduction in quality or quantity. Furthermore, no one who fails to help pay for the good can be denied the benefit of the good.

private goods

Goods that can be consumed by only one individual at a time. Private goods are subject to the principle of rival consumption.

collective decision making

How voters, politicians, and other interested parties act and how these actions influence nonmarket decisions

antitrust legislation

Laws that restrict the formation of monopolies and regulate certain anticompetitive business practices

transfer payments

Money payments made by governments to individuals for which no services or goods are rendered in return. Examples are Social Security old-age and disability benefits and unemployment insurance benefits.

third parties

Parties who are not directly involved in a given activity or transaction

transfers in kind

Payments that are in the form of actual goods and services, such as food stamps, subsidized public housing, and medical care, and for which no goods or services are rendered in return

principle of rival consumption

The recognition that individuals are rivals in consuming private goods because one person's consumption reduces the amount available for others to consume

property rights

The rights of an owner to use and to exchange property

theory of public choice

The study of collective decision making

incentive structure

The system of rewards and punishments individuals face with respect to their own actions