Public Finance Chapter 6

Front 1

The value of an input in its next best use is the

Back 1

Opportunity cost.

Front 2

What is the present discounted value of $400 a year from now and $500 two years from now if the interest rate is 10%?

Back 2

Do on calculator

Front 3

Which of the following statements is TRUE of a cost benefit analysis of a potential government project?

Back 3

Future costs and benefits should be discounted to present values before being compared.

Front 4

Supposed a high speed rail system is proposed that will save commuters from the suburbs a lot of valuable time. If the high speed rail system is built, the value of homes in the suburbs will increase because of the easier commute. When estimating the potential benefits of the high speed rail system:

Back 4

It is important not to double count benefits since the rise in home values is caused by the time savings.

Front 5

The opportunity costs of an input that is sold in a perfectly competitive market is

Back 5

Equal to the price of the input.

Front 6

A government agency has a new hydroelectric project that will take 15 years to build before it provides any benefits. The net present value of the project will be the highest under which of the following discount rates?

Back 6

0 percent. Higher with a smaller discount rate.

Front 7

The maximum amount you would be willing to pay today for the right to receive the money in the future

Back 7

Present Value

Front 8

Process of imputing an interest rate in order to arrive at present value

Back 8

Discounting

Front 9

R is often referred to as the

Back 9

Discount rate and discount factor. Also interest rate.

Front 10

Marginal social cost of a resource is its opportunity cost

Back 10

Not necessarily its cash cost, but what else society could do with the input.

Front 11

Value of resource in next best use

Back 11

Opportunity cost or economic cost

Front 12

Value of leisure time expressed by workers

Back 12

Reservation wage

Front 13

Cost to society if hiring unemployed labor is valued at

Back 13

Leisure time

Not usually zero

Front 14

Inputs produced in imperfectly competitive markets produce rents. Prices for input will overstate actual cost so

Back 14

P>MSC

True cost to society will be overstated.

Front 15

Estimated prices for goods that do not have an explicit market

Back 15

Shadow prices.

Use of parks-relationship between distance from park (travel cost) and number of visits.

Front 16

Everyone may be better off if low income people are better cared for

Back 16

Public good argument

Front 17

Poverty may be due to factors beyond one's control (health)

Back 17

Social insurance argument

Front 18

Poverty may be due to factors beyond one's control (health)

Back 18

Social insurance argument

Front 19

Non cash benefit that increases the quantities of certain goods and services that will be consumed by the recipient

Back 19

In kind transfer

Medicaid

SNAP: Supplemental Nutritional Assistance Program

Front 20

Slope of indifference curve

Rate at which willing to trade off two goods

Back 20

Marginal rate of substitution

Front 21

Amount of money a consumer has available to spend on goods and services

Back 21

Budget constraint (budget line)

Front 22

Change in consumption due to change in relative prices holding utility constant.

Back 22

Substitution effect

Front 23

Change in consumption due to feeling poorer after price increase

Back 23

Income effect

Front 24

Benefits are paid out of a fund build up from contributions by members in the retirement system.

Dollar value of fund must equal the discounted present value of pensions promised in the future.

Back 24

Fully funded pension system

(Defined contribution)

Front 25

Finance pensions for retired workers in a given year entirely by contributions or taxes paid by currently employed workers.

Workers currently paying payroll tax expect future generations will be taxed similarly so that when they retire, they will receive a pension under social security.

Back 25

Pay as you go pension system

(Defined benefit)

Front 26

Contributor has the right to receive benefits in line with contributions

Back 26

Individual equity.

Front 27

Contributors receive and adequate benefit even if they had low earnings.

Back 27

Social equity

Front 28

Ratio of benefits received to earnings prior to the entitling event

Back 28

Replacement ratio

Low earners have high replacement ration. Lower as you earn more.

Front 29

GRR: gross replacement rate

Back 29

Monthly amount/monthly labor earnings in year prior.

Downward scale/slope

Reduced as income increases.