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