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39 Cards in this Set

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Market Economy
An economy in which scarce resources are all (or nearly all) allocated by the interplay of supply and demand in free markets, largely unhampered by government rationing, price-fixing or other coercive interference. In classifying real historical economies, the level of "marketization" is not primarily an either/or issue but rather a matter of degree. The greater the proportion of the goods and services produced in the society that are allocated by market processes (rather than by government edict or the operation of unchangeable custom), the more meaningful it is to refer to its economy as a market economy -- and the more useful is the abstract economic theory of the operation of markets likely to be for understanding and even predicting economic behavior within that society.
Market Failures
occurs when markets do not bring about economic efficiency.

Government intervention occurs when markets are not working optimally i.e. there is a Pareto sub-optimal allocation of resources in a market/industry. In simple terms, the market may not always allocate scarce resources efficiently in a way that achieves the highest total social welfare.

EXAMPLES

Public Goods not provided by the free market because of their two main characteristics

* Non-excludability where it is not possible to provide a good or service to one person without it thereby being available for others to enjoy

* Non-rivalry where the consumption of a good or service by one person will not prevent others from enjoying it
Externality
is an effect of a purchase or use decision by one set of parties on others who did not have a choice and whose interests were not taken into account.

Classic example of a negative externality: pollution, generated by some productive enterprise, and affecting others who had no choice and were probably not taken nto account.

Example of a positive externality: Purchase a car of a certain model increases demand and thus availability for mechanics who know that kind of car, which improves the situation for others owning that model. (Econterms)
Econommic Regulation
eeks, either directly or indirectly, to control prices. Traditionally, the government has sought to prevent monopolies such as electric utilities from raising prices beyond the level that would ensure them reasonable profits. At times, the government has extended economic control to other kinds of industries as well. In the years following the Great Depression, it devised a complex system to stabilize prices for agricultural goods, which tend to fluctuate wildly in response to rapidly changing supply and demand. A number of other industries -- trucking and, later, airlines -- successfully sought regulation themselves to limit what they considered harmful price-cutting.

Another form of economic regulation, antitrust law, seeks to strengthen market forces so that direct regulation is unnecessary.
Deadweight costs
is a cost to the economy arising from the imposition of a tax or regulation. The decision on whether to include deadweight costs in the analysis should be made on a case-by-case basis
delegation
is the handing of a task over to another person, usually a subordinate. It is the assignment of authority and responsibility to another person to carry out specific activities. It allows a subordinate to make decisions, i.e. it is a shift of decision-making authority from one organizational level to a lower one.
CONGRESSIONAL OVERSIGHT
Oversight is an implied rather than an enumerated power under the U.S. Constitution. The government's charter does not explicitly grant Congress the authority to conduct inquiries or investigations of the executive, to have access to records or materials held by the executive, or to issue subpoenas for documents or testimony from the executive.
Social regulation
are aimed at restricting behaviors that directly threaten public health, safety, welfare, or well- being. These include environmental pollution, unsafe working environments, unhealthy living conditions, and social exclusion.
Federal Trade Commision
is an independent agency of the United States government, established in 1914 by the Federal Trade Commission Act. Its principal mission is the promotion of consumer protection and the elimination and prevention of anticompetitive business practices.
Capture Theory
* Firms capture the regulatory process because each firm has a lot at stake.

* While the public as a whole has a lot at stake, any one person has only a very small stake and so has little incentive to invest resources in affecting the regulatory process.

* There are few firms relative to the overall public decreasing costs of organizing

* Firms have the incentive and the opportunity to successfully invest resources in lobbying for favorable regulation.
Iron Triangle Thoery
are entities composed of bureaucratic agencies, interest groups and congressional committees or sub committees which have dominated some areas of domestic policy making. Iron triangles are characterized by mutual dependency in which each element provides key services, information, or policy for the others. And you’ll end up with fair policies after time. They can be applied to public policies such as environmental law with the environmental act of 1970.
Public Good
is a good that is non-rival. This means: consumption of the good by one individual does not reduce the amount of the good available for consumption by others.[1] Thus, if one individual eats a cake, there is no cake left for anyone else; but breathing air or drinking water from a stream does not significantly reduce the amount of air or water available to others.

The term public good is often used to refer to goods that are non-excludable as well as non-rival. This means it is not possible to exclude individuals from the good's consumption. Fresh air may be considered a public good as it is not generally possible to prevent people from breathing it. However, technically speaking such goods should be called pure public goods. These are highly theoretical definitions: in the real world there may be no such thing as an absolutely non-rival or non-excludable good; but economists think that some goods in the real world approximate closely enough for these concepts to be meaningful.

Non-rivalness and non-excludability may cause problems for the production of such goods. Specifically, some economists have argued that they may lead to instances of market failure, where uncoordinated markets are unable to provide these goods in desired quantities. These issues are known as public goods problems, and there is a good deal of debate and literature on how significant they are, and on what their solutions might be. These debates can become important to political arguments about the role of markets in the economy. More technically, public goods problems are related to the broader issue of externalities.
An executive order
is an edict issued by a member of the executive branch of a government, usually the head of that branch.

The term is mostly used by the United States Government. In other countries, similar edicts may be known as decrees, or orders-in-council.
Judicial Review
s the power of a court to review a statute, or an official action or inaction, for constitutionality. In many jurisdictions, the court has power to strike down a statute, overturn an official action, or compel an official action, if the court believes the constitution so requires. In some countries, courts also have authority to strike down statutes even though they are constitutional, for violation of basic principles of justice, or for contrariness to principles of a free and democratic society.
Supply and Demand
attempts to describe, explain, and predict the price and quantity of goods sold in competitive markets. It is one of the most fundamental models, widely used as a basic building block in a wide range of more detailed economic models and theories. The theory of supply and demand is important in the functioning of a market economy in that it explains the mechanism by which many resource allocation decisions are made. However, unlike general equilibrium models, supply schedules in this partial equilbrium model are fixed, as the long run reciprocal relationship between demand and supply is ignored.
Consumer Welfare / Surplus
is the amount that consumers benefit by being able to purchase a product for a price that is less than they would be willing to pay.
Supply and Demand
attempts to describe, explain, and predict the price and quantity of goods sold in competitive markets. It is one of the most fundamental models, widely used as a basic building block in a wide range of more detailed economic models and theories. The theory of supply and demand is important in the functioning of a market economy in that it explains the mechanism by which many resource allocation decisions are made. However, unlike general equilibrium models, supply schedules in this partial equilbrium model are fixed, as the long run reciprocal relationship between demand and supply is ignored.
Consumer Welfare
is the amount that consumers benefit by being able to purchase a product for a price that is less than they would be willing to pay.
Producer welfare/surples
is the amount that producers benefit by selling at a market price that is higher than they would be willing to sell for. Note that producer surplus flows through to the owners of the factors of production, unlike economic profit which is zero under perfect competition
Marginal Benefits
s similar to marginal cost in that it is a measurement of the change in benefits over the change in quantity. While marginal cost is measured on the producer’s end, marginal benefit is looked at from the consumer’s perspective – in this sense it can be thought of as the demand curve for environmental improvement. The marginal benefit curve represents the tradeoff between environmental improvement and other things we could do with the resources needed to gain the improvement.
Cost benifit analysis
is an important technique for project appraisal: the process of weighing the total expected costs against the total expected benefits of one or more actions in order to choose the best or most profitable option.
Marginal Benefits
s similar to marginal cost in that it is a measurement of the change in benefits over the change in quantity. While marginal cost is measured on the producer’s end, marginal benefit is looked at from the consumer’s perspective – in this sense it can be thought of as the demand curve for environmental improvement. The marginal benefit curve represents the tradeoff between environmental improvement and other things we could do with the resources needed to gain the improvement.
Cost Benifit Analysis
is an important technique for project appraisal: the process of weighing the total expected costs against the total expected benefits of one or more actions in order to choose the best or most profitable option.
opportunity cost
is the cost of something in terms of an opportunity forgone (and the benefits that could be received from that opportunity), or the most valuable forgone alternative, i.e. the second best alternative. For example, if a city decides to build a hospital on vacant land that it owns, the opportunity cost is some other thing that might have been done with the land and construction funds instead. In building the hospital, the city has forgone the opportunity to build a sporting center on that land, or a parking lot, or the ability to sell the land to reduce the city's debt, and so on.
barriers to entry
are obstacles in the path of a firm which wants to enter a given market.

The term refers to hindrances that an individual may face while trying to gain entrance into a profession or trade. It also, more commonly, refers to hindrances that a firm may face (or even a country) while trying to enter an industry or trade grouping.
profit maximization
is the process by which a firm determines the price and output level that returns the greatest profit. There are several approaches to this problem. The total revenue -- total cost method relies on the fact that profit equals revenue minus cost, and the marginal revenue -- marginal cost method is based on the fact that total profit in a perfectly competitive market reaches its maximum point where marginal revenue equals marginal cost.
Antitrust
are laws which prohibit anti-competitive behavior and unfair business practices. The laws make illegal certain practices deemed to hurt businesses or consumers or both, or generally to violate standards of ethical behavior. Government agencies known as competition regulators regulate antitrust laws, and may also be responsible for regulating related laws dealing with consumer protection.
Justice Department
is a Cabinet department in the United States government designed to enforce the law and defend the interests of the United States according to the law and to ensure fair and impartial administration of justice for all Americans
The Independent Regulatory Commissions
There are a number of agencies that were established to be outside the power of both the president and the Congress in their operations. Such agencies have authority that is partly legislative and partly judicial.
Price discrimination
exists when sales of identical goods or services are transacted at different prices from the same provider. In a theoretical market with perfect information, no transaction costs and a prohibition on secondary exchange (or re-selling) to prevent arbitrage, price discrimination can only be a feature of monopoly markets. Otherwise, the moment the seller tries to sell the same good at different prices, the buyer at the lower price can arbitrage by selling to the consumer buying at the higher price but with a tiny discount. However, market frictions in oligopolies such as the airlines, and even in fully competitive retail or industrial markets allow for a limited degree of differential pricing to different consumers. Price discrimination also occurs when it costs more to supply one customer than it does another, and yet the supplier charges both the same price.
The Sherman Antitrust Act
"Every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States, or with foreign nations, is declared to be illegal" (see 15 U.S.C. § 1). The Act also provides: "Every person who shall monopolize, or attempt to monopolize, or combine or conspire with any other person or persons, to monopolize any part of the trade or commerce among the several States, or with foreign nations, shall be deemed guilty of a felony [. . . ]" (see 15 U.S.C. § 2). The Act put responsibility upon government attorneys and district courts to pursue and investigate trusts, companies and organizations suspected of violating the Act.
The Clayton Act
egulates general practices that potentially may be detrimental to fair competition. Some of these general practices regulated by the Clayton Act are: price discrimination; exclusive dealing contracts, tying agreements, or requirement contracts; mergers and acquisitions; and interlocking directorates.
The Freedom of Information Act
is a law ensuring public access to U.S. government records. FOIA carries a presumption of disclosure; the burden is on the government - not the public - to substantiate why information may not be released. Upon written request, agencies of the United States government are required to disclose those records, unless they can be lawfully withheld from disclosure under one of nine specific exemptions in the FOIA. This right of access is ultimately enforceable in federal court.
Sunshine Act
equires agencies to give notice of their meetings to the public and to hold open meetings unless the agency decides a meeting should be closed under one of the exemptions defined by the act.

2. The act applies only to executive department agencies or to their subdivisions. It is narrowed further to apply only when a quorum of the agency body is present and when that body has the power to and is conducting or deciding official agency business. Practically, only formal, policy- or decision-making meetings are covered, and an informal or advisory group meeting need not be open.

3. Notice of meetings must be published at least one week in advance in the Federal Register. This may be of some help if you read the Register every day, but you would be better advised to contact the agency information officer or other relevant personnel to keep apprised of meetings that are important to you.
Concentration Ratios
of an industry is used as an indicator of the relative size of firms in relation to the industry as a whole. This may also assist in determining the market form of the industry. One commonly used concentration ratio is the four-firm concentration ratio, which consists of the market share, as a percentage, of the four largest firms in the industry. In general, the N-firm concentration ratio is the percentage of market output generated by the N largest firms in the industry.
Herfindahl index
s a measure of the size of firms in relationship to the industry and an indicator of the amount of competition among them. It is defined as the sum of the squares of the market shares of each individual firm. As such, it can range from 0 to 1 moving from a very large amount of very small firms to a single monopolistic producer. Decreases in the Herfindahl index generally indicate a loss of pricing power and an increase in competition, whereas increases imply the opposite.
Mergers
are a tool used by companies for the purpose of expanding their operations and increasing their profit
ccur in a consensual setting where executives from the target company help those from the purchaser in a due diligence process to ensure that the deal is beneficial to both parties. Acquisitions can also happen through a hostile takeover by purchasing the majority of outstanding shares of a company in the open market against the wishes of the target's board. In the United States, business laws vary from state to state whereby some companies have limited protection against hostile takeovers. One form of protection against a hostile takeover is the shareholder rights plan, otherwise known as the "poison pill". See Delaware corporations.
Collusion
takes place within an industry when rival companies cooperate for their mutual benefit. Collusion most often takes place within the market form of oligopoly, where the decision of a few firms to collude can significantly impact the market as a whole. Cartels are a special case of explicit collusion.
Federal Administrative Act
governs the way in which administrative agencies of the United States federal government may propose and establish regulations. The APA also sets up a process for federal courts to directly review agency decisions. As such, it is an important source of authority within federal American administrative law. The APA applies to both independent agencies and executive department agencies, and their subdivisions. U.S. Senator Pat McCarran called the APA "a bill of rights for the hundreds of thousands of Americans whose affairs are controlled or regulated" by federal government agencies.