Chapter 17+18 Test

Arrow impossibility theorem

a mathematical theorem that holds that no system of voting can be devised that will consistently represent the underlying preferences of voters

Excess burden

a measure of the efficiency loss to the economy that results from a tax having reduced the quantity of a good produced; also known as the deadweight loss

Public choice model

a model that applies economic analysis to government decision making

Regressive Tax

a tax for which people with lower incomes pay a higher percentage of their income in tax than do people with higher incomes

Progressive Tax

a tax for which people with lower incomes pay a lower percentage of their income in tax than do people with higher incomes

Rent seeking

attempts by individuals and firms to use government action to make themselves better off at the expense of others

Voting paradox

the failure of majority voting to always result in consistent choices

Marginal tax rate

the fraction of each additional dollar of income that must be paid in taxes

Poverty rate

the percentage of the population that is poor according to the federal government's definition

Economic discrimination

the practice of paying a person a lower wage or excluding a person from an occupation on the basis of an irrelevant characteristic such as race or gender

Economic rent (pure rent)

the price of a factor of production that is in fixed supply

Median voter theorem

the proposition that the outcome of a majority vote is likely to represent the preferences of the voter who is in the political middle

Monopsony

the situation in which a firm is sole buyer of a factor of production

Labor union

An organization of employees that has a legal right to bargain with employers about wages and working conditions

Personal economies

The application of economic analysis to human resource issues

Marginal revenue product of labor (MRP)

The change in a firm's revenue as a result of hiring one more worker

Lorenz curve

a curve that shows the distribution of income by arraying incomes from lowest to highest on the horizontal axis and indicating the cumulative fraction of income earned by each fraction of households on the vertical axis

Poverty line

a level of annual income equal to three times the amount of money necessary to purchase the minimum quantity of food required for adequate nutrition

Compensating differentials

higher wages that compensate workers for unpleasant aspects of a job

Factors of production

labor, capital, natural resources, and other inputs used to produce goods and services

Derived demand

the demand for a factor of production; it depends on the demand for the good the factor produces

Average tax rate

taxes paid divided by total income

Human capital

the accumulated knowledge and skills that workers acquire from formal training and education or form life experiences

Tax incidence

the actual division of the burden of a tax between buyers and sellers in a market

Marginal product of labor

the additional output a firm produces as a result of hiring one worker

Marginal productivity theory of income distribution

the theory that the distribution of income is determined by the marginal productivity of the factors of production that individuals own