Micro

Limits to the Terms of trade

1. A country wont trade unless the terms of trade are superior to domestic opportunities 2. The terms of trade btw any two countries will lie somewhere between their respective opportunity costs in production.

New "loopholes"

1.College tuition tax deduction 2.Tax-free accounts for people to save more money for college

Taxable Income

= Gross income - exemptions and deductions

Union Shop

A company in which new employees must join a union within a stated time period.

Embargo

A government ban on trade with other countries.

Quota

A limit placed on the quantities of a product that can be imported

Simplicity

A major attraction of the Flat tax is its simplicity

Bilateral Monoploy

A market with only one buyer and one seller

Closed Economy

A nation that does not engage in international trade

Open Economy

A nation that engages in international trade

Flat Tax

A single tax rate system

Tariff

A tax on imported goods

Progressive Tax

A tax system in which tax rate rises as income increases

Regressive Tax

A tax system in which tax rates fall as incomes rise

Voluntary Restraint Agreement (VRA)

An agreement to reduce the volume of trade in a specific good; a voluntary quota. the result is a higher price and lower quantity

Trade deficit

An excess of imports over exports

Market Failure

An imperfection in the market mechanism that prevents optimal outcomes.

Reduced marginal income tax rates

Beginning in 2001. This included a reduced marginal tax rate for the lowest income class. The goal was to increase the disposable income of low-wage workers (equity) while giving them more incentive to work (efficiency).

Sales and Property Taxes

Both regressive because poor people pay a larger percentage of their income on items subject to these taxes.

Infant Industries

Developing industries that require protection to get started.

Collective Bargaining

Direct negotiations between employers and unions to determine labor market outcomes.

Tax Incidence

Distribution of the real burden of a tax

Quota-restricted Trade

Due to the inability of imports to be sold beyond the quota the equilibrium price is higher. Quotas are a greater threat to competition than tariffs, because quotas preclude additional imports at any price.

CAFTA

Formed in 2005 between U.S and central american nations this organization has similar goals to NAFTA

Imports (Chapter 21)

Goods and services purchased from international sources. U.S imported more than $2.3 Trillion of goods and services in 2010

Exports

Goods and services sold to foreign buyers. in 2010 U.S exported $1.8 Trillion of goods

Government Failure

Government intervention that fails to improve market outcomes

competitive equilibrium

Happens when Demand and Supply intersects in competitive markets

GATT

In 1947, twenty three nations pledged to reduce trade barriers and give all GATT nations equal access to their domestic markets. There are now 117 nations signed.

NAFTA

In December 1992, the U.S, Canada, and Mexico signed the North American Free Trade Agreement to eliminate all trade barriers between these countries. A wave of foreign investment in mexico Accelerated economic growth. Reduced inflationary pressures in all 3 nations.

Industrial Unions

Include workers in a particular industry

Personal Income (Chapter 19)

Income received by households before payment of personal taxes

Total Wages Paid

Indicates wages paid to all workers (Wage x number of workers)

Profit Maximizing level of input use

MRP=MFC

Marginal Wage formula

Marginal Wage=Change in total wages paid/Change in quantity of labor demanded

Monopsony

Market with only one buyer

Productivity

Output per unit of input, such as output per labor-hour

Dumping

Pricing a product sold in a foreign market below the cost of producing it or at a price lower than in its domestic market

Horizontal Equity

Principle that people with equal incomes should pay equal taxes

Vertical Equity

Principle that people with higher incomes should pay more taxes

Gini Coefficient

Ranges from 0-1. If one person in a group earns all of the income = 1. If each person in the group has the same amount of income = 0. The higher the coefficient, the more inquality

Tariff-restricted Trade

Tariffs reduce the sale of imports by making them more expensive. Domestic production increases but the price is higher than would be true if imports were not subject to the tariff

Tax-induced Misallocations

Tax loopholes encourage inefficiency by inducing resource shifts into tax-preferred activities

WTO

The 1944 GATT pact also created the World Trade Organization (WTO) to enforce free-trade rules.

AFL-CIO

The American Federation of Labor-Congress of Industrial Organizations

Wealth

The Market value of assets

Comparative Advantage

The ability of a country to produce a specific good at a lower opportunity cost than its trading partners

market power

The ability to alter the market price of a good or service

Absolute Advantage

The ability to produce a good using fewer inputs than another producer

Consumption Possibilities

The alternative combinations of goods and services that a country could consume in a given time period.

Tax base

The amount of income or property directly subject to nominal tax rates

Marginal Revenue Product (MRP)

The change in total revenue associated with one additional unit of input

Marginal Wage

The change in total wages paid associated with a one-unit increase in the quantity of labor employed.

Opportunity Cost

The highest-valued alternative that must be given up to engage in an activity.

labor market (Chapter 17)

The market supply curve represents the number of individuals who are willing to work at each and every wage rate

Tax elasticity of Supple

The percentage change in quantity supplied divided by the percentage change in tax rates

Unionization Rate

The percentage of the labor force belonging to a union

Labor Share of Total Income

The proportion of income received by all workers, in contrast to the share of income received by owners of capital (the capital share)

Income Share

The proportion of total income received by a particular group

Marginal Tax rate

The tax rate imposed on the last (marginal) dollar of income

Size distribution of income

The way total personal income is divided up among households or income classes

Labor Supply

The willingness and ability to work specific amounts of time at alternative wage rates in a given time period

Trade Balance Formula

Trade Balance = exports - imports

Export Industries

Trade not only alters the mix of output but also redistributes income from import-competing industries to export industries

Net Gain

Trade restrictions designed to protect specific microeconomic interests reduce the total gains from trade

Improving the Terms of Trade

Trade restrictions that cause the terms of trade to move in our favor produce a larger share of the gains from trade

Political impact

Unions are a major political force in the U.S providing:1. Electoral and financial support for selected political candidates. 2. Lobbying for important legislation (Minimum wage laws, work and safety rules, and retirement benefits.)

Free trade equilibrium

With free trade the supply increases, causing equilibrium price to be lower and equilibrium quantity to be higher. Free trade results in reduced prices and increased consumption.

Import Competing industries

Workers and producers who compete with imported products

Craft Unions

Workers with a particular skill

Production Possibilities

a curve that shows alternative ways to use an economy's resources

Lorenz Curve

a curve that shows how much the actual distribution of income varies from an equal distribution

In-kind income

goods and services received directly without payment in a market transaction

Income Transfers

payments to individuals for which no current goods or services are exchanged, such as social security, welfare, unemployment benefits

Nominal Tax Rate

taxes paid divided by taxable income

Effective Tax Rate

taxes paid divided by total income

Marginal Factor Cost (MFC)

the change in total costs that results from a one-unit increase in the quantity of a factor employed

Equilibrium Price

the price that balances quantity supplied and quantity demanded

Demand for labor

the quantities of labor employers are willing and able to hire at alternative wage rates in a given time period

Terms of Trade

the rate at which goods are exchanged; the amount of good A given up for good B in trade.

equilibrium wage

the wage rate that produces neither an excess supply of workers nor an excess demand for workers in the labor market

Trade surplus

when a country exports more than it imports

No-trade equilibrium

without trade the equilibrium price is higher and the equilibrium quantity is lower

Tax elasticity of supply formula

% change in quantity supplied/ % change in tax rate