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35 Cards in this Set
- Front
- Back
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Market failure |
A situation in which the market economy leads to too few or too many resources going to a specific economic activity |
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Externality |
A consequence of an economic activity that spills over to affect third parties. Pollution is an externality. |
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Third parties |
Parties who are not directly involved in a given activity or transaction |
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Pigouvian tax/ subsidy |
Another way to combat negative and positive externalities |
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Effluent fee |
A share to a polluter that gives the right to discharge into the air or water a certain amount of pollution; also called a pollution tax |
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Principle of rival consumption |
The recognition that individuals are rivals in consuming private goods because one persons consumption reduces the amount available for others to consume |
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Free rider problem |
A problem that arises when individuals presume that others will pay for public goods so that, individually, they can escape paying for their portion with out causing a reduction in production |
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Transfer payments
Transfers in kind |
Money payments(social security)
Payments in the form of an actual good or service(food stamps) |
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Government budget constraint |
The limit on government spending and transfers imposed by the fact that every dollar the government spends, transfers, or uses to repay borrowed funds must ultimately be provided by the user charges and taxes it collects |
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Tax base |
The value or goods, services, wealth, or incomes subject to taxation |
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Tax rate |
The proportion of a tax base that must be paid to a government as taxes |
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Marginal tax rate |
The change in the tax payment divided by the change in income,or the percentage of additional dollars that must be paid in taxes. The marginal tax rate is applied to the highest tax bracket of taxable income reached. |
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Tax bracket |
A specified interval of income to which a specific and unique marginal tax rate is applied |
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Average tax rate |
The total tax payment divided by total income. It is the proportion of total income. It is the proportion of total income paid in taxes |
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Proportional taxation |
A tax system in which, regardless of an individuals income, the tax bill comprises exactly the same proportion |
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Regressive taxation |
A tax system in which as more dollars are earned, the percentage of tax paid on them falls. The marginal tax rate is less than the average tax rate as income rises |
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Progressive taxation |
A tax system in which, as income increases, a higher percentage of the additional income is paid as taxes. The marginal tax rate exceeds the average tax rate as income rises. |
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Ad valorem taxation |
Accessing taxes by charging a tax rate equal to a fraction of the market price of each unit purchased |
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Static tax analysis |
Economic evaluation of the effects of tax rate changes under the assumption that there is no effect on the tax base, meaning that there is an unambiguous positive relationship between tax rates and tax revenues |
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Dynamic tax analysis |
Economic evaluation of tax rate changes that recognizes that the tax base eventually declines with ever-higher tax rates, so that tax revenues may eventually decline if the tax rate is raised sufficiently |
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Excise taxes |
A tax levied on purchases of a particular good or service |
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Unit tax |
A constant tax assessed on each unit of a good that consumers purchase |
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Unemployment |
Is the total number of adults (16+) willing and able to work and who are actively looking for work but haven’t found a job. |
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Who makes up the labor force? |
Individuals ages 16+ who either have jobs or who are looking and available for jobs. The number of employed plus the number of unemployed |
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Who is excluded in the lane force |
Full time students, military, retired, and persons of institutions |
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How is unemployment computed? |
Divide the number of unemployed by the number of people in the labor force, multiply by 100 |
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How do you compute the labor force participation rate? |
The percentage of no institutionalized working-age individuals who are employed or seeking employment |
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Frictional unemployment |
Temporarily unemployed searching for another decent job |
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Structural unemployment |
Changes in the economy with demands of type of labor |
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Cyclical unemployment |
From business recessions, when demand is low for full employment |
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Seasonal unemployment |
Weather based |
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Price index |
The cost of today’s market basket of goods expressed as a percentage of the cost of the same market basket during a base year |
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Base year |
The year that is chosen as the point of reference for comparison of prices in other years |
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Consumer price index (CPI) |
A statistical measure of a weighted average of prices of a specified set of goods and services purchased by typical consumers in urban areas |
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Producer price index (PPI) |
A statistical measure of a weighted average or prices of goods and services that firms produce and sell |
