Naked Economics Ch.2 and 3

Underground economy

refers to illegal economic activity, essentially the black market

Creative destruction

refers to the incessant product and process innovation mechanism by which new production units replace outdated ones. It was coined by Joseph Schumpeter (1942), who considered it 'the essential fact about capitalism'

intrinsic motivation

when the performance of the task at hand is enjoyable enough that they didn't need any other motivation, much more fragile than the other drives, needs the right environment to survive

Green taxes

Tax paid by consumers for products or services that are not environmentally friendly. Intended purpose of this tax is to offset the negative impact resulting from the use of non-environmentally friendly products and services

Prisoner's dilemma

a paradox in decision analysis in which two individuals acting in their own self-interest pursue a course of action that does not result in the ideal outcome

fair taxes

a tax that implies that only two similar individuals, such as people with the same income, will pay similar taxes

simple taxes

a tax that is easily understood and collected

broad taxes

more people get taxed but everyone pays less and there is less incentive to not pay because it is so small, rather than impose a large tax on a small group, harder to evade

Principal-agent issues

occurs when one person or entity (the "agent") is able to make decisions on behalf of, or that impact, another person or entity: the "principal" (realtor does less and makes almost the same amount of money but costs you 40,000$)

sin taxes

tax specifically levied on certain goods deemed harmful to society, for example alcohol and tobacco, candies, drugs, soft drinks, fast foods, coffee, sugar, gambling and pornography

regressive taxes

taxes that fall more heavily on poor people than rich people

Perverse incentives (law of unintended consequences)

that actions of people—and especially of government—always have effects that are unanticipated or unintended

externalities

the cost or benefit that affects a party who did not choose to incur that cost or benefit

environmental motivation

the rewards and punishments the environment delivers for behaving in certain ways, such as monetary rewards for good grades or grounding from your parents when you do something wrong

behavioral motivation

when humans and most other animals eat because they're hungry and drink because they're thirsty