public policy midterm 001

Public Policy

actions public officials take that impact society

Public Official

part of the government in a position of legal authority; payed by taxpayers

Laissez-faire

minimum government interference "leave us be"

Markets

any place where two or more parties can meet to engage in an economic transaction

GDP

Gross domestic product

Capitalism

individuals choosing to make transactions; private ownership

Socialism

government determines income

Economic Value

the benefit a person or company receives from a good or service

Incentives

something that encourages or motivates a producer or buyer

Democracy

a government for the people by the people

Autocracy

government in which absolute power is held by one person

Decentralized

let the people decide

Centralized

the government decides

Wealth Creating Government Policies

set up strong legal framework

Liberal Democracy

representative government that protects the liberties of its citizens

Public Problems

problems that have not or cannot be solved by private entrepreneurs

Market Failures

when markets fail to be efficient

Public Good

non-excludable and non-rivalrous

Private Good

excludable and rivalrous

Common Good

non-excludable and rivalrous

Club Good

excludable and non-rivalrous; until congestion

Benefits of Competition

lower prices

Social Cost

the total cost to society of an economic activity

Private Cost

the direct

Pure Private Good

A private good is a product that must be purchased to be consumed

Human Capital

The economic value of skills and training embodied in a person

Free Rider

a person who receives the benefit of a good but avoids paying for it

Externalities

The price of something that affects a purchase that is often ignored when a purchase is made

Negative Externalities

things that affect untargeted participants in a bad way (ex. pollution)

Positive Externalities

benefit untargeted people (ex. vaccines)

Willingness to Pay

the highest amount that the consumer is willing to pay for a good or service

Rivalrous

Limited to one after purchase or consumption

Social Value

private value + value of externality

Non-crony Capitalism

A "level playing field" where all economic actors receive equal treatment under the law

Crony Capitalism

close friends of a political leader are given business advantages in return for their political support

Moral Hazard

lack of incentive to guard against risk where one is protected from its consequences

Rent Seeking

when people influence public policy in a way that will increase their incomes

Rents

incomes earned in excess of what is needed to provide a service or produce a good

Lobbying for public good

Lobby for their vision of a better society (NOT rent seeking)

Authoritariansim

political system characterized by the rejection of political plurality

Liberal and illiberal democracy

liberal: free & fair elections open society. illiberal: a governing system in which elections take place

Coasian bargain

externalities may be caused by weak property rights; strengthen property rights and then let affected parties bargain; e.g. noise pollution

Pigouvian tax

taxes designed to correct for the effects of external costs/increase private costs so that they reflect social costs

Liberalism

A political ideology that emphasizes rule of law

Socialism

a political and economic theory of social organization that advocates that the means of production

Capitalism

an economic and political system in which a country's trade and industry are controlled by private owners/individuals for profit

Milton Friedman

He was a famous American economist. He strongly promoted the idea of free trade and condemned government regulation and socialism. Conservative/libertarian angle

Joseph Stiglitz

Believes that the current free market rules undermine the sovereignty of developing countries; argues that increasing equality of opportunity leads to stronger economic growth. Policies like healthcare for the poor

John Locke

primary admonition is that the biggest threat to personal liberty is a strong central government

Negative externality

costs borne by members of society but not by producers of the externality

Positive externality

beneficial side effect that affects an uninvolved third party

Lack of market competition

market failure; keeps prices high in monopolies

Public goods

Goods that are neither excludable nor rivalrous in consumption (Air

Private good

a good that is both rival and excludable in consumption (Food

Excludability

the property of a good whereby a person can be prevented from using it

Non-rivalrous in consumption

This means that one consumer's enjoyment of the benefits of a good does not diminish any other consumer's enjoyment of its benefits.

Club Goods

Goods that are excludable but not rivalrous in consumption (Cinemas

Common Goods

non-excludable and rival in consumption (fish

Life expectancy

A figure indicating how long

Market efficiency

when a market is capable of producing output high enough to meet consumer demand

Private cost

the cost borne by the producer or consume of a good or service

Social cost

the cost to everyone: the private cost+ the external cost

Natural monopoly

a monopoly that arises because a single firm can supply a good or service to an entire market at a smaller cost than could two or more firms (Utilities)

Public problem

1. Have or cannot be solved by private entrepreneurs

2. Are perceived as a responsibility of society to solve

Examples: spread of infectious disease

mass hunger

Victor Orban

Prime Minister of Hungary (Authoritarian Checklist/Trump reference)

Equality of opportunity

a widely shared American ideal that all people should have the freedom and opportunity to use whatever talents and wealth they have to reach their fullest potential (A capitalist lens

Social Inequality

A condition in which members of society have differing amounts of wealth

Rent-seeking

activities undertaken by individuals or firms to influence public policy in a way that will benefit them

Lobbying

A strategy by which organized interests seek to influence the passage of legislation by exerting direct pressure on members of the legislature.

Free ridership

recognition by a rational consumer that the benefits of consumption are accessible without paying for them

Crony capitalism

an economic system characterized by close

Moral hazard

a lack of incentive to guard against risk where one is protected from its consequences