Economics: Economic Welfare, Income Distribution, and Market Failure

This set of vocabulary flashcards covers core economic concepts from Chapter 7, including welfare measures, market failures, taxation principles, and income distribution metrics.

Marginal benefit

The extra satisfaction, expressed in dollar terms, from consuming a certain unit of a product.

Total benefit

The total satisfaction, expressed in dollar terms, from consuming a product.

Consumer surplus

The difference between what consumers are willing to pay and what they actually pay, defined as the net benefit from buying a product at its market price.

Producer surplus

The difference between the price received from selling each unit of a product and the marginal cost of producing it.

Deadweight loss

The net reduction in both the consumer surplus and producer surplus due to a reduction in market output, often caused by uncompetitive markets or government policy.

Spillover effects

External effects of economic activity which have an impact on outsiders who are not producing or consuming a product.

Spillover costs

Negative external effects of producing or consuming a product, where prices fail to cover both private and public costs.

Externality

Exists when some of the costs and benefits associated with production and consumption fall on someone other than the producers or consumers of the product.

Spillover benefits

Positive external effects of producing or consuming a product that lead to a market producing too little of the product without government intervention.

Public good

A product whose benefits cannot be restricted to certain individuals, characterized by shared consumption and nonexclusion.

Excise tax

An indirect tax charged on a particular product where an intermediary, such as a producer or merchant, is charged and then pays the government.

Ad Valorem

A type of tax where a fixed percentage is charged on a particular good.

Specific tax

A tax where a fixed dollar amount is charged dependent upon the quantity purchased.

Price floor

A minimum price set above the equilibrium price, typically resulting in a surplus in the market.

Price ceiling

A maximum price set below the equilibrium price, typically resulting in a shortage in the market.

Lorenz curve

A graph showing the cumulative distribution of income for households categorized into five groups based on their income levels.

Gini coefficient

A numerical measure of income distribution varying from $0$ (perfect equality) to $1$ (perfect inequality), defined as the area between a Lorenz curve and the line of perfect equality divided by the entire triangular area under the line.

Labour productivity

Output per worker in a given time; it is the most important determinant of wages.

Seniority rights

Workplace privileges provided to workers who have the longest experience with their employer.

Industrial unions

Labour unions that include all workers in a certain industry.

Craft unions

Labour unions that include workers in a particular occupation and restrict who can be members.

Job discrimination

Hiring, wage, and promotion decisions based on criteria other than a worker’s credentials or performance.

Low-income cut-off (LICO)

Statistics Canada's measure of poverty, defining a household as poor if it spends more than $64\%$ of its after-tax income on food, clothing, and shelter.

Market Basket Measure (MBM)

A measure of poverty based on an absolute definition of items considered as necessities.

Welfare society

A society in which the government plays a major role in attempting to ensure the economic well-being of its citizens through transfer payments and personal income taxes.

Universality

A principle where welfare benefits apply to all individuals regardless of their income levels.

Means testing

A principle where transfer payments vary according to a recipient's income to direct benefits to those who need them most.

Benefits received principle

A taxation principle suggesting that taxes should be geared to the benefits each taxpayer gains from government activity.

Ability to pay principle

A taxation principle suggesting that taxes should be based on a taxpayer's financial capacity, such as personal income tax.

Progressive taxes

Taxes that increase as a proportion of income as income rises, such as Canadian personal income taxes.

Proportional taxes

Taxes that stay constant as a proportion of income as income rises.

Regressive taxes

Taxes that decrease as a proportion of income as income rises, often including sales and excise taxes.

Thomas Malthus theory

A theory predicting that population increases in a geometric progression $(1, 2, 4...)$ while food increases in an algebraic progression $(1, 2, 3...)$, leading to population growth outstripping food supply.