Intro to Policy Analysis

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bheight1
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100098
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Intro to Policy Analysis
Updated:
2011-09-14 20:48:16
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Policy Analysis Microeconomics
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Test 1 Intro to Policy Analysis
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  1. A graphical representation of all bundles of goods that make an individual equally well off
    indifference curve
  2. What are the two properties of indifference curves?
    • consumers prefere higher indifference curves of indifference curves that are farther out
    • indifference curves are always downward sloping
  3. Why are indifference curves always downward sloping?
    because that would violate the "more-is-better" assumption
  4. The additional increment to utility obtained by consuming an additional unit of a good
    marginal utility
  5. A mathematical representation of all the combinations of goods an individual can afford to buy if she spends her entire income
    budget constraint
  6. What is the budget constraint formula?
    M=P1X1 + P2 X2
  7. In the budget constraint formula, what does M represent?
    the source of income
  8. In the budget constraint formula, what does P1 and P2 represent?
    prices of two indifferent goods
  9. In the budget constraint formula, what does X1 and X2 represent?
    the two indifferent products
  10. Define externality.
    Whenever the actions of one party make another party worse or better off, yet the firsr party neither bears the costs nor receives the benefits of doing so
  11. A problem that causes the market economy to deliver an outcome that does not maximize efficency
    market failure
  12. When a firm's production reduces the well being of others who are not compensated by the firm
    negative prodction externality
  13. the direct cost to producers of producing an additional unit of a good
    private marginal cost (PMC)
  14. the private marginal costs to producers + any costs associated with the production of the good that are imposed on others
    social marginal cost (SMC)
  15. Without market failures, describe the relationship of SMC and PMC.
    SMC=PMC
  16. Describe the relationship between SMC, PMC and MD when there are externalities.
    SMC=PMC+MD
  17. What does MD stand for?
    marginal damage done to others from each unit of production
  18. The direct benefit to consumers of consuming an additional unit of a good by the consumer
    Private marginal benefit (PMB)
  19. the private marginal benefit to consumers - any costs associated with the consumption of the good that are imposed on others
    Social marginal benefit (SMB)
  20. When an individual's consumption reduces the well-being of others who are not compensated by the individual
    negative consumption externality
  21. Describe the relationship between SMB, PMB and MD when there is a negative consumption externality.
    SMB=PMB-MD
  22. where production benefits parties other than the producer and yet the producer is not compensated
    positive production externaities
  23. when an individual's consumption increases the well being of others but the individual is not compensated by those others
    positive consumption externality
  24. In the case of a negative consumption externality, describe the curves displayed on a graph.
    SMB curve lies below the PMB curve
  25. In the case of a positive consumption externality, describe the curves on a graph.
    SMB curve lies above the PMB curve
  26. In the case of a negative production externality, describe the curves on a graph.
    SMC curve lies above the PMC curve
  27. In the case of a positive production externality, describe the curves on a graph.
    SMC curve lies below the PMC curve
  28. When either private negotiations or government action lead the price to the party to fully reflect the external costs or benefits of that party's actions
    internalizing the externality
  29. The part theorem where there are well-defined property rights and costless bargaining
    Part I Coase Theorem
  30. The efficent solution to an externality does not depend on which party is assigned the property rights, as long as someone is assigned those rights
    Part II Coase Theorem
  31. Shared ownership of property rights gives each owner power over all the others
    holdout problem
  32. When an investment proposal has a personal cost but a common benefit, individuals will underinvest
    free rider problem
  33. goods that are perfectly non rival in consumption and are non-excludable
    pure public goods
  34. goods that satisfy the two public good conditions to some extent, but not fully
    impure public goods
  35. What is the crowd-out problem?
    as the government provides more of a public good, the private sector will provide less
  36. Explain the warm glow model.
    A model of public goods provision in which individuals care about both the total amount of the public good and their particular contributions as well
  37. Discuss the areas around the budget line.
  38. What do points A and B represent?

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