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41 Cards in this Set
- Front
- Back
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Private Sector |
Households, business, international sector |
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Public sector |
activity by various levels of the government |
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Who is supreme in the Market system of the private sector? |
Consumer |
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Consumer Sovereignty |
consumer purchases determine what is produced. |
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Household |
one or more people who occupy a unit of housing |
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consumption |
Household spending |
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Business Firm |
Business organization controlled by a single management |
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investments |
spending on raw material that will be used to make the goods |
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Economic Freedom |
degree to which private individuals are able to carry out exchange without government interaction |
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Private property rights |
Rights of individuals to own property. (crucial to a market) |
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Principle of mutual exclusivity |
owner of private property can enjoy that property without intrusion |
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Principle of rivalry |
when someone uses something, less remains for others |
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Market failure |
when the market outcome is not the socially efficient outcome |
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Reasons for Market Failure |
Free Ride externalities Asymmetric information Network externalities |
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Private good |
non excludable and rivalrous |
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club good |
excludable and non rivalrous |
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Public Good |
non exludable and non rivalrous |
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Common good |
non excludable and rivalrous |
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private costs and benefits |
costs and benefits that only affect those directly involved in the transaction |
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externality |
cost or benefit to someone who is not directly involved in the transaction |
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social cost |
private cost + external cost |
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negative externality |
supply curve does not reflect the true cost of the good. Supply provided is greater than it would be if the supplier had to pay all the costs. |
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Positive Externality |
Demand curve does not reflect all the benefits of the good. Dp is less than it would be if consumers received all the benefits. |
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Internalization |
When people causing the externalities pay for them |
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Asymmetric Information |
When one party has more information than the other. |
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Lemon market |
higher-quality goods and consumers are pushed out of the market because unobservable qualities are incorrectly valued. (adverse selection) |
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Moral Hazard |
Problem that arises when people change their behavior from what was expected of them |
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Network externalities |
each additional user increases the value of the entire network (facebook) |
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Lock-in |
Cost of changing to a more efficient tech is higher than the benefit (microsoft) |
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Logrolling |
inefficiency where legislators only support each other to get support for their own thing |
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Rent seeking |
transfer wealth from one group to another without actually increasing production of total wealth. |
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Gini coefficient |
area between Lorenz Curve and perfect equality divided by total area under line of equality. |
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in-kind transfers |
allocation of goods from one group to another (food stamps) |
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Mobility |
extent to which people move from one income quintile to another overtime |
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Progressive Tax |
Tax rate increases as income increases |
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Proportional Tax |
Pay a percentage of your income, doesn't matter what you own |
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Regressive |
The lower your income, the more taxes you have to pay |
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negative Income Tax |
transfers increasing amounts of income to households earning below a specific level. |
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Absolute Advantage |
The US gives up less sugar to produce coffee than Mexico. |
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Comparative Advantage |
divide opportunity costs. The one with comparative advantage does the trade |
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product- life- cycle theory |
as a product matures, the Comparative advantage shifts away from the country of origin to where it is cheaper to manufacture. |
