RMB101 The Welfare of Markets

*Ratio Level of Measurement Necessity*

The classification of numerical data that possesses a non-arbitrary or true zero point, enabling all arithmetic operations and the *meaningful comparison of absolute magnitudes* (e.g., stating 200 pounds is twice as heavy as 100 pounds),,

*Interval Level Constraint*

The type of quantitative measurement that allows for differentiation, ordering, and the interpretation of consistent differences between values, but fundamentally *lacks a true zero point*, prohibiting the calculation of meaningful ratios (e.g., temperatures in Celsius or Fahrenheit),,

*Nominal Variable Analytical Focus*

Variables that strictly categorize data without any inherent order or ranking (e.g., nationality or sex), for which statistical analysis must focus exclusively on *counting the frequency and reporting the mode* of each category,,,

*Ordinal Variable Statistical Limitation*

Variables that differentiate and rank data but fail to quantify the exact magnitude of difference between successive values (e.g., "good" versus "excellent" satisfaction ratings), making the calculation of the *mean misleading*,

*Operationalization Definition*

The crucial research process of explicitly defining how an abstract concept or attribute will be measured, which involves *specifying the precise procedures and instruments* to be used for systematic data collection,

*Reliability Assessment Criterion*

The quality of measurement that refers strictly to the *consistency of the instrument, yielding the same results under consistent conditions* across repeated measurements,

*Validity Assessment Criterion*

The quality of measurement that indicates whether the instrument *accurately reflects the concept it is intended to measure*, ensuring the relevance and appropriateness of the collected data,

*Polytomous Variables Description*

A specific case of categorical (nominal or ordinal) variables that must contain *more than two distinct categories* (e.g., favorite ice cream flavors: Chocolate, Vanilla, Strawberry),

*Discrete Quantitative Variable Characteristic*

Numerical variables that can only take *specific, distinct values*, typically representing counts of items (e.g., the number of pets, where fractional values are impossible),,

*Continuous Quantitative Variable Characteristic*

Numerical variables that can theoretically take *any value within a specified range*, allowing for infinite possibilities depending on the precision of the measurement instrument (e.g., height or weight),

*Internal Consistency Reliability Check*

A method used when multiple items measure the same construct, involving statistical checks to determine how *closely related the items are* in order to reduce random measurement errors,

*Monotonicity Requirement for Likert Items*

The necessary characteristic that items within a Likert/Summative scale must possess, meaning that respondents who possess the measured property to a *greater degree are more likely to agree* with the associated positive statements,

*Double-Barreled Item Error*

A crucial ambiguity error in questionnaire construction where a single item attempts to measure *two distinct concepts simultaneously* (e.g., "I love to pet and pick up cats"), preventing clear interpretation of the response,

*Acquiescence Bias Detection Method*

The response pattern where participants tend to *agree with all statements regardless of their content (both positive and negative), often identified by including negatively phrased items* to check for internal inconsistency,

*Social Desirability Bias Mechanism*

The response bias where participants consciously or subconsciously answer in a way that they believe will be *more socially acceptable or favorable* (e.g., claiming never to have lied to present oneself ethically),

*Extreme Response Style Manifestation*

A response pattern where participants consistently choose only the *most extreme options available* (e.g., "strongly agree" for all items), which may not accurately reflect their nuanced true feelings,

*Limitation of Secondary Data Collection (Measurement Control)*

A significant drawback of using previously collected data is the researcher's *limited control over the original measurement methods* used, meaning they cannot verify the accuracy or specific operationalization used by the original researcher,

*Interviewer-Administered Method Trade-Off*

A primary data collection method that allows for *clarification and follow-up questions to be asked directly to respondents, but carries the inherent disadvantages of being expensive and time-consuming*,

*Vague Item Risk*

The construction error where items are *overly general or unclear in their meaning, creating the risk that respondents may interpret the question in multiple different ways*, reducing the quality of the data,,.

Welfare Economics

The economic field that evaluates market efficiency with the explicit goal of maximizing the total welfare or overall size of the economic "pie", focusing primarily on efficiency rather than wealth distribution

Total Surplus

The measure of overall benefit to society from market transactions, calculated as the sum of consumer surplus and producer surplus

Market Efficiency (Maximum Surplus)

The state achieved at the equilibrium point (Point E) where the demand curve (value to buyers) intersects the supply curve (cost to sellers), ensuring that buyers who value the product the most and sellers with the lowest costs are participating

Consumer Surplus (CS)

The difference between what consumers are willing to pay (value to buyers, determined by the demand curve) and the market price they actually pay

Producer Surplus (PS)

The difference between the price producers receive for a unit and their cost of production, reflecting the additional benefit producers gain from selling at a price above their cost

Producer Surplus vs. Profit

PS focuses solely on the difference between the selling price and the cost of production per unit, whereas profit is the total revenue minus total costs, including fixed costs

Underproduction (Market Failure)

A market state occurring to the left of the equilibrium point (E), where potential transactions are lost because buyers value the product more than its cost, suggesting government intervention

Overproduction (Market Failure)

A market state occurring to the right of the equilibrium point (E), where production costs exceed the value of the product to buyers, also suggesting a need for government intervention

Benevolent Social Planner

An idealized government role introduced in welfare economics that aims to adjust production levels to achieve market efficiency, particularly when market failures like positive or negative externalities are present

Tax Wedge

The structural gap created between the price buyers pay and the price sellers receive when a tax is imposed, leading to a loss of transactions in the market

Dead-weight Loss (DWL)

The irreversible loss of total surplus that occurs because transactions no longer take place due to taxation or tariffs, and this lost surplus does not convert into government tax revenue

Elasticity and DWL

The principle that more elastic supply and demand curves result in larger dead-weight losses and smaller tax revenues, as market actors are highly responsive to the change in price caused by the tax

Quadratic Growth of DWL

The non-linear relationship where deadweight loss increases at an increasing rate as the size of the tax increases, meaning each additional unit of tax causes a disproportionately larger loss of surplus

Trade Impact: Comparative Advantage

When a country opens its economy and possesses a comparative advantage, domestic prices rise to the world price, causing producer surplus to increase at the expense of consumer surplus

Trade Impact: External Comparative Advantage

When other countries have the comparative advantage, opening the economy leads to a decrease in domestic prices, benefiting consumers but reducing producer surplus

Tariffs

Taxes specifically imposed on imports, intended to protect domestic producers by raising consumer prices and generating tariff revenue, but also incurring a deadweight loss

Trade Argument: Economies of Scale

The efficiency gain cited as a reason economists support trade, allowing producers to lower average production costs by increasing output for a larger global market

Gini Coefficient

A supplementary measurement of welfare used alongside efficiency metrics that functions as a summary measure of economic inequality

Human Development Index (HDI)

A composite index measuring national socioeconomic development based on combining measures of education, health (longevity), and adjusted real income per capita

Capability and Functioning Measures

A welfare measurement approach focusing on what people can actually do or be, such as their ability to participate in society and their freedom of choice

Gross National Happiness (GNH)

The Bhutan Model of welfare, which emphasizes four pillars: good governance, sustainable socio-economic development, preservation of culture, and environmental conservation.