Final Exam Review Sheet - Introduction to Microeconomics | ECN 1011, Study notes of Microeconomics

Download Final Exam Review Sheet - Introduction to Microeconomics | ECN 1011 and more Study notes Microeconomics in PDF only on Docsity! Chapter 16: Private goods- a good or service that is individually consumed and that can be profitably provided by privately owned firms because they can exclude non-payers from receiving the benefits. Public goods – a good or service that is characterized by non-rivalry and non excludability, usually provided by the government. Free rider problem- the inability of potential providers of an economically desirable good or service to obtain payment from those who benefit because of non-excludability. Cost benefit analysis – a comparison of the marginal coasts of a government project or program with the marginal benefits to decide whether or not to employ resources in that project or program and to what extent. Marginal cost marginal benefit rule – as it applies to the cost benefit analysis, the tenet project that the government material or program should be expanded to the point where the marginal cost and marginal benefit of additional expenditures are equal. Externalities: a cost of benefit from production or consumption, accruing without compensation to someone other than the buyers and sellers of the product. Negative externality: a cost imposed without compensation on third parties by the production or consumption of sellers or buyers (example: manufacturer dumps toxic chemicals into a river, killing the fish sought by sports fishers; an external cost or spillover cost). Positive Externality: a benefit obtained without compensation by third parties from the production or consumption of sellers or buyers (example: a beekeeper benefits when a neighboring farmer plants clover). Coase theorem – the idea, first stated by economist Ronald Coase that some externalities can be resolved through private negotiations of the affected parties. Tragedy of the commons- the tendency for commonly owned natural resources to be overused, neglected, or degraded because their common ownership gives nobody an incentive to maintain or improve them. Market for externality rights – a market in which firms can buy rights to discharge pollutants. The price of such rights is determined by the demand for the right to discharge pollutants and a perfectly inelastic supply of such rights (the latter determined by the quantity of discharges that the environment can assimilate). Cap-and-trade program- a government strategy for reducing harmful emissions or discharges by placing a limit on their total amounts and then allowing firms to buy and sell the rights to emit or discharge specific amounts within the total limits. Optimal reduction of an externality – the reduction of a negative externality such as pollution to the level at which the marginal benefit and marginal cost of reduction are equal. Climate-change problem – the problem of rising world temperatures that most climate experts believe are caused at least in part by increased carbon dioxide and other greenhouse gases generated as by-products of human economic activities. Asymmetric information – A situation where one party to a market transaction has much more information about a product or service than the other. The result may be an under or overall location of resources. Moral hazard problem – the possibility that individuals or institutions will change their behavior as the result of a contract or agreement. For example: banks whose deposits depend are insured against losses may make riskier loans and investments. Adverse selection problem – a problem arising when information known to one party to a contract or agreement is not known to the other party, causing the latter to incur major coasts. Example: individuals who have the poorest health are most likely to buy health insurance. Chapter 17: Public Choice Theory: economic analysis of government decision making, politics, and elections. Logrolling: the trading of votes by legislators to secure favorable outcomes on decisions concerning the provision of public goods and quasi-public goods. Paradox of voting: a situation where paired choice voting by majority rule fails to provide a consistent ranking of society’s preferences for public goods or services. Median-voter model: the theory that under majority rules the median (middle voter) will be in the dominant position to determine the outcome of an election. Government failure: inefficiencies in resource allocation caused by problems in the operation of the public sector of government, specifically, rent-seeking pressure by special-interest groups, shortsighted political behavior, limited and bundled choices, and bureaucratic inefficiencies. Special interest effect: any result of government promotion of the interests (goals) of a small group at the expense of a much larger group. Earmarks: narrow, specially designated spending authorizations placed in broad legislation by senators and representatives for the purpose of providing benefits to firms and organizations within their constituencies without undergoing the usual evaluation process or competitive bidding. Rent seeking: the actions by persons, firms, or unions to gain special benefits from government at the taxpayers or someone else’s expense. Benefits-received principle: the idea that those who receive the benefits of goods and services provided by government should pay the taxes required to finance them. Ability-to-pay principle: the idea that those who have greater income (or wealth) should pay a greater proportion of it as taxes than those who have less income (or wealth) Progressive tax: a tax whose average tax rate increases at the taxpayer’s income increases and decreases as the taxpayer’s income decreases. Regressive tax: a tax whose average tax rate decreases as the taxpayer’s income increases and increases as the taxpayer’s income decreases. Proportional tax: a tax whose average tax rate remains constant as the taxpayer’s income increases or decreases. Tax incidence: the person or group that ends up paying taxes Efficiency loss of tax: the loss of net benefits to society because a tax reduces the production and consumption of a taxed good below the level of allocative efficiency (Also known as the dead weight loss of the tax). Chapter 18: Antitrust policy: the use of antitrust laws to promote competition and economic efficiency. Antitrust laws: legislation (including Sherman act and Clayton act) that prohibits anticompetitive business activities such as price fixing, bid rigging, monopolization, and tying contracts. Countercyclical payments (CCPs): cash subsidies paid to farmers when market prices for certain crops drop below targeted prices. Payments are based on previous production and are received regardless of the current crop grown. Marketing loan program: a federal farm subsidy under which certain farmers can receive a loan (one per-unit- of-output basis) from a government lender and then, depending on the price of the crop, either pay back the loan with interest or keep the loan proceeds while forfeiting their harvested crop to the lender. Chapter 20: Income inequality: the unequal distribution of an economy’s total income among households or families. Lorenz curve: a curve showing the distribution of income in an economy. The cumulated percentage of families (income receivers) is measured along the horizontal axis and cumulated percentage of income is measured along the vertical axis. Gini ratio: a numerical measure of the overall dispersion of income among households, families, or individuals; found graphically by dividing the area between the diagonal line and the Lorenz curve by the entire area below the diagonal line. Income mobility: the extent to which income receivers’ move from one part of the income distribution to another over some period of time. Noncash transfers: a government transfer payment in the form of goods and services rather than money, for example, food stamps, housing assistance, and job training; also known as “in-kind transfers.” Equality efficiency trade off: the decrease in economic efficiency that may accompany a decrease in income inequality; the presumption that some income inequality is required to achieve economic efficiency. Poverty rate: the percentage of the population with incomes below the official poverty income levels that are established by the federal government. Entitlement programs: government programs such as social insurance, food stamps, Medicare, and Medicaid that guarantee particular levels of transfer payments or noncash benefits to all who fit the programs’ criteria. Social insurance programs: programs that replace the earnings lost when people retire or are temporarily unemployed, that are financed by payroll taxes, and that are viewed as earned rights (rather than charity). Social security: the social insurance program in the United States financed by federal payroll taxes on employers and employees and designed to replace a portion of the earnings lost when workers become disabled, retire, or die. Medicare: a federal program that is financed by payroll taxes and provides for compulsory hospital insurance for senior citizens, low-cost voluntary insurance to help older Americans pay physicians’ fees and subsidized insurance to buy prescription drugs. Unemployment compensation: the social insurance program that in the United States is financed by state payroll taxes on employers and makes income available to workers who become unemployed and are unable to find jobs. Public assistance programs: government programs that pay benefits to those who are unable to earn income (because of permanent disabilities or because they have very low income and dependent children); financed by general tax revenues and viewed as public charity (rather than earned rights). Supplemental security income (SSI): a federal financed and administered program that provides a uniform nationwide minimum income for the aged, blind, and disabled who do not qualify for benefits under social security in the United States. Temporary Assistance for Needy Families (TANF): a state administered and partly federal funded program in the United States that provides financial aid to poor families; the basic welfare program for low0income families in the United States; contains time limits and work requirements. Food stamp program: a program permitting low-income persons to purchase for less than their retail value or to obtain without cost, coupons that can be exchanged for food items at retail stores. Medicaid: a federal program that helps finance the medical expenses of individuals covered by the supplemental security income (SSI) and temporary assistance for needy families (TANF) programs. Earned-income tax credit (EITC): A refundable federal tax credit for low-income working people designed to reduce poverty and encourage labor-force participants. Discrimination: The practice of according individuals or groups inferior treatment in hiring, occupational access, education and training, promotion, and wage rates, or working conditions even though they have the same abilities, education, skills and work experience as other workers. Taste for discrimination model: a theory that views discrimination as a preference for which an employer is willing to pay. Discrimination coefficient: a measure of the cost or disutility or prejudice; the monetary amount an employer is willing to pay to hire a preferred worker rather than a non-preferred worker. Statistical discrimination: the practice of judging an individual on the basis of the average characteristic of the group to which he or she belongs rather than on his or her own personal characteristics. Occupational segregation: the crowding of women or minorities into less desirable, lower-paying occupations. Chapter 21: Deductibles: the dollar sum of (for example, healthcare) costs that an insured individual must pay before the insurer begins to pay. Copayments: the percentage of (for example, healthcare) costs that an insured individual pays while the insurer pays the remainder. Fee for service: In the health care industry, payment to physicians for each visit made or procedure performed rather than payment as an annual salary. Defensive medicine: the recommendation by physicians of more tests and procedures than are warranted medically or economically as a way of protecting themselves against later malpractice suits. Tax subsidy: a grant in the form of reduced taxes through favorable tax treatment (for example, employer- paid health insurance is exempt from federal income and payroll taxes). “Play or pay”: a means of expanding health insurance coverage by requiring that employers either provide insurance for their workers or pay a special payroll tax to finance insurance for non-covered workers. National health insurance (NHI): a proposed program in which the federal government would provide a basic package of healthcare to all citizens at no direct charge or at a low cost sharing level. Financing would be out of general tax revenues. Preferred provider organizations (PPOs): An arrangement in which doctors and hospitals agree to provide healthcare to insured individuals at rates negotiated with an insurer. Health maintenance organizations (HMOs): Healthcare providers that contract with employers, insurance companies, labor unions, or government units to provide health care for their workers or others who are insured. Diagnosis-related-group (DRG) system: payments to doctors and hospitals under Medicare based on which of hundreds of carefully detailed diagnostic categories best characterize the patient’s condition and needs. Medicare part D: the portion of Medicare that enables enrollees to shop among private health insurance companies to buy highly subsidized insurance to help reduce the out-of-pocket expense of prescription drugs. Health savings accounts (HSAs): Accounts into which people with high-deductible health insurance plans can place tax-free funds each year and then draw on these funds to pay out-of-pocket medical expenses such as deductibles and copayments. Unused funds accumulate from year to year and later can be used to supplement Medicare. Chapter 22: Economic immigrants: International migrants who have moved to a country from another to obtain economic gains such as better employment opportunities. Legal immigrants: A person who lawfully enters a country for the purpose of residing there. Illegal immigrants: People who have entered a country unlawfully to reside there; also called unauthorized immigrants. H1-B provision: a provision of the U.S. immigration law that allows the annual entry of 65,000 high-skilled workers in “specialty occupations” such as science, R&D, and computer programming to work legally and continuously n the United States for six years. Human capital: The knowledge and skills that make a person productive. Beaten paths: Migration routes taken previously by family, relatives, friends and other migrants. Backflows: the return of workers to the countries from which they originally migrated. Skill transferability: The ease to which people can shift their work talents from one job, region, or country to another job, region or country. Self-selection: as it relates to international migration, the idea that those who choose to move tend to have greater motivation for economic gain or greater willingness to sacrifice current consumption for future consumption that those with similar skills who choose to remain at home. Efficiency gains from migration: additions to output form immigration in the destination nation that exceeds the loss of output from emigration from the original nation. Brain drains: the exit or emigration of highly educated, highly skilled workers from a country. Emigration: the exit (outflow) of residents from a country to reside in foreign countries. Remittances: Payments by immigrants to family members and others located in the origin countries of the immigrants. Complementary resources: Productive inputs that are used jointly with other inputs in the production process; resources for which a decrease in the price of one leads to an increase in the demand for the other.