IB Economics Section 2.9, 2.10, & 2.12 Vocabulary

rivalry

A characteristic of a good according to which its consumption by one person reduces its availability for someone else.

excludability

A characteristic of goods according to which it is possible to exclude people from using the good by charging a price for it.

public goods

Goods that are neither excludable nor rival in consumption and thus must be provided by the government.

private goods

goods that are both excludable and rival in consumption

free rider problem

This occurs when people who benefit from consuming resources, goods, or services do not have to pay for them, which results in overconsumption.

asymmetric information

a situation in which one party to an economic transaction has less information than the other party

symmetric information

Where buyers and sellers both have access to the same information

adverse selection

the situation in which one party to a transaction takes advantage of knowing more than the other party to the transaction

moral hazard

the actions people take after they have entered into a transaction that make the other party to the transaction worse off

signaling

Is a method used by the seller when the seller has more information, which attempts to convince the buyer that the product is of good quality. Ex. Brand Name

screening

A method used by the buyer when the buyer has limited information; for example the buyer may research the seller or product.

income inequality

Is how unevenly income is distributed throughout a population. The less equal the distribution, the higher income inequality is.

wealth inequality

the unequal distribution of assets within a population

equity

Is the condition of being fair or just.

equality

The state of being equal with respect to something; income equality means everyone receives the same income.

Lorenz curve

Graph showing how much the actual distribution of income differs from an equal distribution

Gini coefficient (Index)

A measure of income inequality within a population, ranging from zero for complete equality, to one if one person has all the income.

cost-benefit analysis

a study that compares the costs and benefits to society of providing a public good

contracting out

When the government hirers a private organization to deliver a public program or service.

direct provision

(a governmental arrangement) government provides a public service directly

positive discrimination

The practice of giving advantage to groups that have been treated unfairly in the past.

quasi-public goods

Goods which may satisfy the two public good conditions (non-rivalry and non-excludability) only to a certain extent or only some of the time.

wealth

the value of assets owned

income

Earnings from work or investment

poverty

the state of being poor

marginal tax rate (MTR)

the percentage of the next dollar earned that must be paid in taxes

average tax rate (ATR)

Tax liability divided by taxable income. It is the percentage of income paid in taxes.

progressive tax

A tax for which the percentage of income paid in taxes increases as income increases

regressive tax

A tax for which the percentage of income paid in taxes decreases as income increases

proportional tax

A tax in which the average tax rate is the same at all income levels.

non-excludable

A characteristics of some goods where it is not possible to exclude someone from using a good, because it is not possible to charge a price.

non-rivalrous

A characteristic of some goods where the consumption of the good by one person does not reduce consumption by someone else.

social safety net

A collection of social welfare services provided by the state, or other institutions, targeted to to vulnerable, resource-deprived households, to prevent them from falling into poverty.