Econ Exam 3 Chapter 16-18 and taxes

Card Set Information

Econ Exam 3 Chapter 16-18 and taxes
2014-12-03 02:18:47
Show Answers:

  1. Public goods
    • Social or collective goods
    • Goods that are nonrival in consumption and/ or their benefits are nonexlusive
    • It's impossible to prevent people from using such goods
    • -Nonrival, one person's consumption doesn't affect another's
    • -Nonexclusive, once produced no one can be excluded from enjoying it
    • ex. Public art, national defense
    • To construct demand curve sum up amounts HH are willing to pay
  2. Private Goods
    • Rival
    • Exclusive,
    • provided by private sector
    • ex. pizza, crowded swimming pool
    • To construct demand curve sum up quantities HH will consume
  3. Natural monopoly
    • Nonrival but exclusive
    • Congestion can result to private goods
    • Provided by private sector or government
    • ex. cable TV, uncrowded swimming pool
  4. Open-access good
    • Rival but nonexclusive
    • Regulated by the government
    • ex. sea fish, migratory birds
  5. Free rider problem
    You will benefit from a public good wether you contribute or not
  6. Drop in the bucket problem
    My payment is small in comparison to what needs to be paid for a public good, so my contribution will not affect it much at all
  7. Optimal level of provision for public goods
    • The point where resources drawn for the production of a public good only to the extent that people are willing to pay for
    • Where the demand curve hits the marginal cost curve
    • Hard to determine since the govenment can't know everyone's willingness to pay
  8. Tiebout hypothesis
    • The right amount of public goods can be produced when housing prices and taxes refelct consumer preferences in the area
    • ex. Higher housing prices or taxes is the higher price of public goods
  9. Median voter model
    The preference of the median voter will dominate other choices- govenment will do what the middle voter wants
  10. Public goods legislation
    • Widespread benefits; widespread costs
    • Positive impact on economu
    • -Total benefits > total costs
    • ex. national defense
  11. Special interest legislation
    • Concentrated benefits; widespread costs
    • Harms the economy
    • -Total cost > total benefits
    • Pork barrel spending
    • ex. farm subsidies
  12. Populist legislation
    • Widespread benefits; concentrated costs
    • Those who pay the cost fight this legistlation
    • Those who do benefits receive little potential benefits then if they remained rationally ignorent
    • ex. raising taxes on top income earners
  13. Competing interest legislation
    • Concentrated benefits; concentrated costs
    • Fierce political battles (labor unions v. employers)
  14. Rent seeking
    • Special interest groups spend lots of money lobbying government officials on issues that benefit the group
    • Benefits are called rent
  15. Common critiques of market economy
    • -Lack adequate competition in some markets
    • -Distribution of income generated by market economies
    • -Problem of external cost that come from economic activity
  16. Externalities
    • A cost or benefits that is imposed on you by some outside activity
    • The difference between the Marginal social cost and the Marginal Private cost
    • Marginal damage curve
  17. Fixed production technology
    Relationship of the output and the externality is fixed, the only way to reduce it is to reduce production
  18. Variable technology
    • Externality can be reduced by changing production techniques
    • Most firms have this
  19. Approached taken to solving problem of externalities:
    • Direct government regulation
    • Government imposed taxes and subsidies
    • Private bargaining and negotiation
    • Legal rules and procedures
    • Sale or auctioning of rights to impose externalities
  20. Direct regulation of Externalities
    • Taxes, subsidies, legal rules, public auction
    • Put legal limits on the amount of externalities produced
    • More of a political solution
  21. Taxes on Externalities
    • Government taxes the product setting it equal to the marginal damage cost
    • Tricky since its hard to measure the MDC
    • They could also tax the pollution, encouraging clean up but this is hard to do
  22. Private bargaining and negotiation
    • We need a system of private rights
    • In this case the firms would have to figure things out themselves
  23. Coase Theorum
    • As long as property rights are clearly stated and bargining costs are minimal private parties can arrive at solutions regardless of how property is assigned
    • Cheapest solution will always be chosen
    • Every piece of the planet has to be owned by someone
  24. Legal rules and procedures
    • Laws in place that define what action is taken when damage happens
    • Provides firms with incentive to stop polluting
    • Injection- court forbids the continuation of behavior that leads to damages
    • Liability rules - laws that require A to compensate for B damages
  25. Selling or Auctioning pollution rights
    • Government allocates tradable or marketable "pollution permits" that give the firms the right to pollute a certain amount
    • most flexible method and is preferred
  26. Common Pool problem
    • Externalities can also be seen in the use of open access goods
    • A fisherman will fish until his personal marginal benefit meets his personal marginal cost
    • Cost to society is higher than personal cost
    • Problem is resource being used is not privately owned
  27. Positive Externalities
    • MSB > MPB
    • In cases like education
  28. Lorenz Curve
    Graph of the distribution of income with the cumulative percentages of House holds polotted on the horizontal axis,
  29. Gini Coefficient
    • Measure of inequality derived from lorenz curve
    • Ranges from 0 - 1
    • =(area between curves)/(sum of area between curves and area below curve and x axis)
  30. Poverty line
    • Set at the department of agricultures minimum food budget
    • The line that distinguishes the poor from the nonpoor
  31. Sources of household income
    • From wages or salaries
    • From property, capital, land
    • Government
  32. Human capital
    Knowledge and skills that people possess, people with more human capital get paid more
  33. Compensating differentials
    • Differences in wage that results from working conditions
    • i.e. risky jobs will offer higher pay
  34. Property income
    Income from ownership of property, profits, interest, dividends, and rents
  35. transfer payments
    payments by the government to people who do not supply or good or service in return
  36. Explaining inequality
    • Life cycle effects; if there are more children or older people we might see more inequality
    • Human capital investment; do we consider college kids poor?
  37. Arguments for and against redistribution
    • Against: Market when left to operate is fair, redistribution removes incentives for both the rich and poor to work harder
    • For: US as wealthy as it is need to provide all its members with the necessities of life
  38. Medicare
    • in-kind government transer program, provides health and hospital benefits to the aged and disabled
    • reguardless of income
  39. Unemployment compensation
    • Transfer programĀ 
    • Pays cash for certain period of time
    • For laid off workers who have worked a specified time for a employer
  40. Public assistance or welfare
    • Means tested
    • Transfer program
    • -families with dependent children
    • -the very poor
  41. Supplemental security income (SSI)
    federal program set under social security administration meant to help elderly that receive little or not social security
  42. Medicaid
    • in kind government transfer program
    • provides health and hospital benefits for the poor
  43. In kind government assistance
    • Food stamps
    • Housing programs
  44. Cash governement assistance
    The earned income tax credit
  45. Proportional tax
    • TAx that is the same proportion of income for all householdsĀ 
    • Flat tax
    • Like social security tax
  46. Progressive tax
    Percentage tax that increases percentage when income increases
  47. Regressive tax
    • Tax percentage that as income fall it falls it increases
    • sales tax
  48. MArginal tax rate
    Tax rate paid on the next dollar earned
  49. average tax rate
    total amount of tax paid divided by total income