C3- Section 3

Comprehensive vocabulary flashcards covering the economic roles of government, public goods, market failures, positive and negative externalities, public transfer payments, and comparative social spending.

Market Failure

An economic situation that occurs when people who are not part of a marketplace interaction benefit from it or pay part of its costs.

Public Goods

Goods and services provided by federal, state, and local governments and consumed by the public as a group, funded with taxes collected by the government.

Two Characteristics of Public Goods

The criteria that people cannot be excluded from the benefits of the product even if they do not pay for it, and that one person's use of the product does not reduce its usefulness to others.

Free Rider

A person who chooses not to pay for a good or service but benefits from it anyway when it is provided.

Toll Goods

Goods consumed by the public as a group from which people can be excluded from using unless they pay an entrance fee or toll, often initially funded by the public sector and operated by the private sector.

Infrastructure

The goods and services necessary for the smooth functioning of society, such as highways, mass transit, power, water and sewer systems, education, health care, and police and fire protection.

Externality

A side effect of an economic transaction that affects someone other than the producer or the buyer.

Negative Externality

An externality that imposes an adverse side effect or cost on people who were not involved in the original economic activity, such as industrial pollution.

Positive Externality

An externality that creates a positive effect or benefit for people who were not involved in the original economic activity, such as a neighbor planting a flower garden or a new college opening in town.

Pollution Permits (Clean Air Act of 1990)

Market-based permits distributed by the government under a $1990$ amendment to limit sulfur dioxide emissions, allowing companies using cleaner production methods to sell their extra permits to other firms.

Subsidy

A government payment funded by taxes that helps cover the cost of an economic activity considered to be in the public interest, designed to spread positive externalities.

Safety Net

A collection of government programs designed to protect people from economic hardship, especially those who are too old, sick, or temporarily struggling.

Transfer Payment

A transfer of income from one person or group to another even though the receiver does not provide any goods or services in return, which can occur privately through gifts or inheritances.

Public Transfer Payment

A payment in which the government transfers income collected from taxpayers to recipients who do not provide anything in return, characteristic of mixed and command economies rather than pure market economies.

Social Security

The largest public transfer program in the United States ($\$517.8\text{ billion}$ in $2004$ expenditures), funded by current workers' taxes to provide retirement and disability income.

Workfare

Welfare reform initiatives introduced in the mid-$1990\text{s}$ that emphasized helping recipients enter or re-enter the workforce quickly, moving $4.7\text{ million}$ Americans from welfare to self-sufficiency since $1997$.

Unemployment Compensation

A public safety net payment combining federal and state funds that tides workers over after job loss while requiring recipients to demonstrate active efforts to find employment.

Social Spending

Government funding allocated to programs addressing social welfare; for example, Sweden allocates close to $30\%$ ($28.8\%$ in $2001$) of its economy to social spending with a $21.6\%$ tax burden, compared to the United States spending about $15\%$ ($14.7\%$ in $2001$) with a $9.1\%$ tax burden.