Political Economics and Development Lecture Flashcards

A comprehensive set of practice flashcards covering political economy roots, economic principles, market mechanics, voting theories, development indicators, and specific case studies from the lecture and tutorial transcripts.

What is the Greek word origin of the term "political economy"?

It comes from the Greek words "polis" (meaning city or state) and "oikonomia" (meaning household management).

What are the four key elements that characterize a State?

A permanent population, a defined geographic area, an organized government, and sovereignty.

According to Principle 1 of Economics, what is a "societal tradeoff" often described in terms of defense and consumer goods?

The tradeoff between "Guns and Butter," where the more spent on national defense (guns), the less can be spent on consumer goods (butter).

What is the formal definition of "Opportunity Cost"?

Whatever must be given up to obtain some item.

How do rational people make decisions according to Economic Principle 3?

Rational people compare marginal benefits and marginal costs.

In the 1975 study by Sam Peltzman, what was the unintended effect of auto-safety seat belt laws?

The laws produced fewer deaths per accident but more accidents overall, leading to little change in driver deaths and an increase in pedestrian deaths.

What is the core concept of Adam Smith's "Invisible Hand" from The Wealth of Nations (1776)?

Households and firms interacting in markets act as if guided by an "invisible hand" to lead to desirable market outcomes.

What is the difference between a "change in supply" and a "change in quantity supplied"?

A "change in supply" refers to a shift of the curve caused by a non-price variable, while a "change in quantity supplied" is a movement along the curve caused only by a price change.

Who are the three key philosophers associated with Social Contract Theory?

Thomas Hobbes (strong authority), John Locke (natural rights), and Jean-Jacques Rousseau (popular sovereignty).

What does "Social Choice Theory" examine?

It examines how individual preferences are aggregated into collective decisions.

What is the "Condorcet Paradox" discovered by Marquis de Condorcet?

With three or more candidates, it is possible for preferences to be intransitive, meaning A beats B, B beats C, and C beats A, resulting in no clear winner.

What are the four desirable properties of a voting system defined by Arrow's Impossibility Theorem?

Unanimity, Transitivity, Independence of Irrelevant Alternatives ($IIA$), and No Dictators.

According to the Median Voter Theorem, what point will majority rule pick?

Majority rule will pick the most preferred point of the median voter (the voter exactly in the middle of the distribution).

What is the difference between a "Normal good" and an "Inferior good" regarding income?

For a normal good, an increase in income leads to an increase in demand; for an inferior good, an increase in income leads to a decrease in demand.

Define the two behaviors resulting from asymmetric information: Adverse Selection and Moral Hazard.

Adverse Selection happens before a transaction takes place (hidden characteristics), while Moral Hazard happens after a transaction (unobserved actions).

What is the "Principal-Agent Problem"?

A problem arising when agents (e.g., managers) pursue their own goals rather than the goals of the principals (e.g., owners).

How does the lecture define a "Negative Externality"?

The uncompensated impact of one person's actions on the well-being of a bystander where the impact is adverse.

What is the "Coase Theorem"?

The proposition that if private parties can bargain without cost over the allocation of resources, they can solve the problem of externalities on their own regardless of the initial property rights.

Distinguish between Public Goods and Common Resources based on excludability and rivalry.

Public Goods are neither excludable nor rival; Common Resources are rival but not excludable.

What is the formula for the "Value of the Marginal Product of Labor" ($VMPL$)?

$VMPL = MPL \times P$, where $MPL$ is the marginal product of labor and $P$ is the market price of the output.

What is the difference between "Vertical Inequality" and "Horizontal Inequality"?

Vertical Inequality is the gap between the rich and the poor (income shares), while Horizontal Inequality is when people of similar backgrounds and qualifications earn wildly different incomes.

Define the "Laffer Curve."

A curve depicting the relationship between tax rates and tax revenue, showing that at $0\%$ and $100\%$ tax rates, revenue is zero.

What are the three components of the traditional Human Development Index ($HDI$)?

Health (Life expectancy at birth), Knowledge (Adult literacy and gross enrollment), and Standard of Living (Real GDP per capita in PPP\).

What is the difference between the arithmetic mean in the old $HDI$ and the geometric mean in the new $NHDI \, (2010)$?

The arithmetic mean assumes perfect substitutability between dimensions, while the geometric mean accounts for imperfect substitutability, meaning poor performance in one dimension directly reduces the overall index.

In the "Basic Transfer Equation" for debt dynamics, what represents a negative basic transfer?

A situation where the interest rate ($r$) exceeds the annual percentage increase in debt ($d$), resulting in $(d - r)D < 0$, meaning the country loses foreign exchange.

Which four countries are cited in the lecture as "Autocratic High-Growth" case studies?

Singapore (Lee Kuan Yew), China (Deng Xiaoping), South Korea (Park Chung-hee), and Egypt (Mohamed Ali Pasha).

What is "Rootless Growth" as defined in the tutorial answers?

Growth that is not based on a country's own culture and values.

What is the World Bank's GNI per capita threshold for "Low-Income Countries" ($LICs$) for $FY2025$?

GNI per capita $\le \$1,145$.

What is the "Tragedy of the Commons"?

A parable explaining why common resources are used excessively because individuals ignore the negative externality their use imposes on others.