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77 terms

Mircro economics quiz 4

Quiz # 4
STUDY
PLAY
Underallocation
efficiency loss
demand side failure
underproduction
Producer surplus
actual price vs min price accepted
benifits from higher price
Consumer surplus
the amount a buyer is willing to pay for a good minus the amount the buyer actually pays for it
benifits paying less than max price
Demand side faliures
impossible to charge consumers what they want to pay
some can enjoy benifs without pay
full willingness pay
allocative efficiency
right amount produced
Table
rival nonrivial
excludable private club
nonexcludable impure public pure public
overallocation
effeciency loss
overproduction
supply side fails
private good
a good that is both rival and excludable
public goods
Goods, such as clean air and clean water, that everyone must share
provided by the government or community
nonmarketball goods
nonrivial
nonexcludablity
free rider problem
supply side failures
overallocating of resources
occur when private supply curves understated
quasi public good
excludability
positive
government sponsers produce to prevent an underallocation of resources
Government intervention
Negative Positive
Specific taxes Subsides
Spillovers cost Spillovers benefits
overproduction underproduction
Cost-Benefit Analysis
economic model that compares the marginal costs and marginal benefits of a decision
determines whether the public good is worth producing and its optimal quantity.
Externalities
A cost or benefit accruing to a third party external to the transaction
Negative Externalities
Too much is produced
Supply-side market failure
Positive Externalities
Too little is produced
Demand-side market failure
Government's Role in the Economy
correcting externalities
lead to government failures
Government Failures
overregulation or underregulation that lead to an inefficient level of externality reduction
Government Intervention
Correct negative externalities
Direct controls
Specific taxes and other economic incentives
Correct positive externalities
Subsidies and other economic incentives
Apportioning the Tax Burden
Size, distribution, and impact of the costs that taxes impose on society
Benefits-received principle
Ability-to-pay principle
Progressive tax
average tax rates increase as income increases
Regressive tax
average tax rate declines as income increases
Proportional tax
average rate stays the same as income increases
Public choice theory
economic analysis of governmnet decision making, elections, polities
Principal-Agent Problem
Representative's interests are misaligned with those he/she represents
, A problem caused by an agent pursuing his own interests rather than the interests of the principal who hired him
Median Voter Model
Median voter preference will determine size of government
Consmer surplus is the difference between the ______ price a consumer is willing to pay for a product and the price paid
highest
The supply curve for any good, private or public, is its marginal _____ curve
cost
Market Faulure in competitive markets can be classified into
demand side and supply side
Reductions of combined consumer and producer surplus associated with nderproduction or overproduction of a product
deadweight loss
A____ to a producer is a payment from the government to decrease the producers cost in order to encourage more output of a product beneficial to society
subsidy
public goods are distingushed by
nonexcludability and nonrivalry
The situation when people can receive the benefits from a good without having to pay for it is known as the ___ problem
free-rider
A positive externaility is an uncompensated spillover ____
gain
In order to correct for positive externalities,government may choose to ___ buyers and or producers, as well as to provide ___ goods.
Subsidize
public
Characteristics of a private good
excludability
rivalry
A_______ aka a spillover cost, is a market failure that occurs whne a third party to a transaction experiences uncompensated costs
negative externality
What must rise as more of a good is produced beyond the point at which diminishing returns sets in
Marginal costs
in performing its allocation function, govt not only produces public goods but also corrects for market failures called ____ or spillovers
externalities
A cost-____ analysis involes an assessent of marginal changes
benefit
market failures cna be used to justifity:
government intervention in the economy
____ surplus is the differences between the actual price a seller receives and the minimum acceptable price
producer
What is the difference between the maximum price a consumer is willing to pay for a product and the actual price
consumer surplus
The market demand curve for positive externalities reflects
only the direct, private benefits to those who demand and use the product
The direct way to reduce negative externalities from a certain activity is to pass ___ limiting that activity
legislation
What do points on the demand curve represent
marginal benefit
Polices for coping with the overallocation of resources caused by negative externalities
market for externality rights
liability rules and lawsuits
private barganining
direct control
specific taxes
What is achieved at the equilibrium quantity
allocative effeiciency
productive efficiency
deadweight loss is also known as
an efficiency loss
goods that are provided by competitive markets because they make a profit are know as
private goods
direct controls ____ the marginal cost of production because the firms must operate and maintain pollution control equipment
raise
the -___ rule actually tells us which plan provides the maximum excess of total benefits over total cost, or in other words, the plan that provides society with the maximum net benefit
marginal cost-marginal benefit
A tax is ____ if its average rate increase as income increase
progressive
regressive tax
it may claim a larger absolute or dollar amount of income as income rises
the average rate declines as income increases
it claims a smaller proportion of income as income rises
it might not clain a larger absolute or dollar maount of income as income rises
A proportional tax is one in which the average rate ____ regardless of income
constant
the benefits received principle and the ability to pay principle refer to alternative methods
how to apportion the economys tax burden
the distribution of income
If demand is ____, a significant price ____ shifts the burden of a tax on the product to consumers
inelastic
increase
redistrubtive tax goals
an excise tax on luxury goods
imposing progessive taxes as a way to redistribute income
reducing the income gap between the rich and the poor through tax system adjustments
The social secuirty payrool tax is
borne by workers and employers
result of a government imposed tax on producers
tax maybe shared in some proportion between producers and the consumers
equal output falls and equal price rises
supply curve shifts upward
sales taxes tend to be shifted in their entirerty from ____ to____
sellers
consumers
owner occupied property owners
bear the entire property tax on their properties
The rich are more affected by _____ taxes, whereas the poor fell the pinch more from___ taxes
progessive
regressive
Given a specific amount of demand, the more ____ the supply, the larger is the portion of the tax borne by producers
inelastic
excise taxes
consumers, producers ... depending on elasticities
The economic analysis of government decisionmaking, politics ad eletion is know as
public choice theory
in economic terms, a payment beyond the amount necessary to keep a resource supplied in its current use is called ___ seeking
rent
The provision of public goods and services is inherently inefficient because
scare resources are inefficiently utilized toproduce goods and services that people don't want
actingin the public sector, people are forced to buy goods and services they dont want
the median voter
holds the middle position in an issue
When inherent shortcomings within the public sector produce inefficient outcomes, the result is
government failure
a situation in which society may not be able to rank its preferences consistently through paired choice majoirty voting is known as
the paradox of voting
those who benefit the most from ___ goods and services should pay the ___ necessary to finance them
public
tax
conflicts that occur when those who are supposed to be acting in the best interests of others instead take actions that help themselves are called
the principal agent problem
the appeal to government for special benefits at the expense of tax payers is called
rent-seeking
special interest effect
large gains, small indicidual losses
very narrow, specidically desgnated authorization of expenditires are called
earmarks
political officeholders favor programs that have immediate and clear cut ___ and vague or deferred ___
benifits
cost