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