Unit 8 ap micro

What are three ways that we can induce people to internalize external costs?

-tax or otherwise regulate the use of the common resource -create a system of tradable licenses for the right to use the common resource -make the common resource excludable and assign property rights to some individuals

How do you determine how much of a public good to provide?

-through voluntary contributions -supplied by self interested individuals -some are deliberately made excludable

Why are emission taxes and efficient way to reduce pollution?

Ensures that the marginal benefit of pollution is equal for all sources of pollution

Coase theorem

Even in the presence of externalities an economy can always reach and efficient solution as long as transaction costs are sufficiently low

What is marginal cost pricing?

Occurs when regulators set a monopolies price equal to its marginal cost to achieve efficiency

Means tested programs

Only provide aid to those in property

In the case of a common resource, the market tends to...

Over-consume the good because the good is nonexcludable but rival in consumption

What should a policy makers do to encourage the consumption of an activity that generates positive externalities?

Place a subsidy per unit of the good consumed

Non-means tested programs

Provide benefits to everyone

For a market to efficiently deliver a good, the good must be...

Rival in consumption and excludable

Poverty rate

The percentage of the population with incomes below the poverty threshold

The free rider problem is associated with...

The production of public goods

Rival in consumption

The savior of the good cannot be consumed by more than one person at the same time

When a good is nonexcludable, the market produces...

Too little of the good

Internalize the externality

When individuals take external costs or benefits into account

Nonexcludable good

When the supplier cannot prevent consumption by people who do not pay for it

Excludable good

When the supplier of that good to prevent people who did not pay from consuming it

Economic functions of gov.

-enforcing laws and contracts -providing public goods -correcting market failures

Causes of poverty

-lack of education -lack of proficiency in English -racial/gender discrimination -bad luck

What were the two important provisions of the Sherman antitrust act?

-make it illegal to create a contract, combo or conspiracy that restrains interstate trade -outlaw the monopolization of any part of interstate commerce

Government can reduce income inequality by doing...

-provide transfer payments to the poor -directly influence market prices, such as establishing a minimum wage -tax high-income earners at a higher rate than low-income earners

External benefit

A benefit that an individual or a firm confers on others without receiving compensation

What is the gini coefficient

A number that summarizes a county's level of income inequality based on how unequally income is distributed

Pigouvian subsidy

A payment design to correct for the tax of external benefits

Negative income tax

A program that supplements the income of low income workers

Pigpuvian tax

A tax that is designed to reduce external costs

Economic insecurity

Afflictions on a family's income

What does gini of 1 mean

All county income went to 1 person

Poverty threshold in 2014

Alone-11,670 Family- 23,850

External cost

An uncompensated cost that an individual or a firm imposes on others

Non-rival in consumption

If more than one person can consume the same unit of the good at the same time

Characterization of a public good

If one person uses the good, it does not prevent others from using it

Free rider

Individuals have no incentive to pay for their own consumption and instead will take a free ride on anyone who does pay

When a gov. Issues tradable pollution permits...

It effectively creates a market for the right to pollute

How does tradable emissions permits work?

Licenses to emit limited quantities of pollutants that can be bought and sold by polluters

What is average cost pricing?

Occurs when regulators set a monopolys price equal to its average cost to prevent the firm am incurring a loss

Economists position on allocating resources to control pollution

Pollution should be reduced to the point where the marginal social cost of pollution control equals the marginal social benefit of pollution control

What four specific behaviors were outlawed by the clayto antitrust act

Prices discrimination, anti-competitive practices, anti-competitive mergers/acquisitions and interlocking directorate

The market system fails to produce public goods because...

Private firms cannot restrict the benefits of such goods only to consumers who are willing to pay for them.

What did the Federal Trade Commission act of 1914 do?

Prohibits unfair methods of competition in interstate commerce and created the federal trade commission to enforce the act

Environmental standards

Rules that protect environment by specifying limits for or actions by producers and consumers

What does the Lorenz curve show

Shows the percentage of all income received by the poorest members of the population

Marginal social cost of pollution

The additional cost imposed on society as a whole by an additional unit of pollution

Marginal social benefit of pollution

The additional gain to society as a whole for an additional unit of pollution

Thr optimal amount of pollution is...

The amount where the marginal social benefit of thr pollution equals the marginal social cost of the pollution.

Poverty threshold

The annual income below which a family is officially considered poor

Transaction costs

The cost to individuals making a deal

What is the problem with environmental standards

They are inflexible and don't allow reductions in pollution to be achieved at the lowest possible cost

When the consumption of a good generates positive external benefits, the market tends to produce...

Too little of the good

If the production of a good creates a positive externalities, the private market will produce...

Too little of the good at too high a price

If the production of a good creates negative externalities, the private market will produce...

Too much of the good at too low a price

Network externality

When the value of the goods for an individual depends on how many other people also use the good