Economics Chapter 4 Review

Front 1

What are the three statements of economic theory?

Back 1

-Statements about objectives
-Statements about constraints on opportunities
-Statements about choices.

Front 2

Property rights-

Back 2

Legal rules that establish what things a person may use or control, and the conditions under which such use or control may be exercised.

Front 3

Rationality-

Back 3

Acting purposefully to achieve an objective, given constraints on the opportunities that are available.

Front 4

Ockham's razor-

Back 4

The principle that simpler theories are to be preferred to more complex ones when both are consistent with given observations.

Front 5

Full rationality-

Back 5

The assumption that people make full use of all available information in calculating how best to meet their objectives.

Front 6

Bounded rationality-

Back 6

The assumption that people intend to make choices that best serve their objectives, but have limited ability to acquire and process information.

Front 7

Self-regarding preferences-

Back 7

A set of objectives that depend only on the material welfare of the decision maker.

Front 8

Other-regarding preferences-

Back 8

A set of objectives that includes not only the material welfare of the decision maker, but also the material welfare of others and their attitudes toward the decision maker.

Front 9

Market performance-

Back 9

The degree to which markets work efficiently in providing arrangements for mutually beneficial trade.

Front 10

Market failure-

Back 10

A situation in which a market fails to coordinate choices in a way that achieves efficient use of resources.

Front 11

What are the three most important causes of market failure?

Back 11

-Externalities
-Public goods
-Insufficient competition

Front 12

Externalities-

Back 12

The effects of producing or consuming a good whose impact on third parties other than buyers and sellers of the good is not reflected in the good's price.

Front 13

Public Goods-

Back 13

Goods that (1) cannot be provided for one person without also being provided for others and (2) when provided for one person can be provided for others at zero additional sum.

Front 14

Monopoly-

Back 14

A situation in which there is only a single seller of a good or service.

Front 15

Public choice theory-

Back 15

The branch of economics that studies how people use the instittions f government in pursuit of their own interests.

Front 16

Economic rent-

Back 16

Any payment to a factor of production in excess of its opportunity cost.

Front 17

Political rent seeking (rent seeking)-

Back 17

The process of seeking and defending economic rents through the political process.

Front 18

Government failure-

Back 18

A situation in which a government policy causes inefficient use of resources.