Micro Economics - prantil exam 2 terms and defenitions

Externality

A cost or benefit that affects a third party not directly involved in a transaction

Negative Externality

A spillover cost where social cost is greater than private cost leading to overproduction

Positive Externality

A spillover benefit where social benefit is greater than private benefit leading to underproduction

Private Cost

The cost paid by producers directly involved in production

Social Cost

The total cost to society including both private cost and external cost

Private Benefit

The benefit received directly by consumers

Social Benefit

The total benefit including both private benefit and external benefit

Marginal External Cost

The additional external cost from producing one more unit

Marginal External Benefit

The additional external benefit from consuming one more unit

Marginal Social Cost (MSC)

The total cost to society of producing one more unit equal to private cost plus external cost

Marginal Social Benefit (MSB)

The total benefit to society of consuming one more unit equal to private benefit plus external benefit

Market Equilibrium

The quantity and price where private supply equals private demand

Socially Efficient Equilibrium

The level of output where marginal social benefit equals marginal social cost

Overproduction

When the market produces more than the socially optimal quantity usually due to a negative externality

Underproduction

When the market produces less than the socially optimal quantity usually due to a positive externality

Internalizing the Externality

Adjusting incentives so that decision makers account for external costs or benefits

Pigovian Tax

A tax equal to the marginal external cost used to reduce overproduction

Pigovian Subsidy

A payment equal to the marginal external benefit used to increase production

Command-and-Control Regulation

Government rules that directly limit or require certain behaviors

Coase Theorem

If transaction costs are low private bargaining will lead to an efficient outcome regardless of initial property rights

Transaction Costs

The time and resources required to negotiate and enforce agreements

Deadweight Loss (DWL)

The loss of total surplus that occurs when a market is not producing at the efficient quantity

Rivalry

A characteristic of a good where one person’s consumption reduces availability for others

Excludability

A characteristic of a good where people can be prevented from using it if they do not pay

Private Goods

Goods that are both rival and excludable

Public Goods

Goods that are nonrival and nonexcludable

Quasi-Public Goods

Goods that are nonrival but excludable

Common Resources

Goods that are rival but nonexcludable

Free-Rider Problem

When people benefit from a good without paying leading to underproduction

Tragedy of the Commons

The overuse of a common resource because it is rival but nonexcludable

Property Rights

Legal ownership that allows a resource to be controlled and managed efficiently

Rent Seeking

Attempts to gain economic benefits through political influence rather than productive activity

Voters’ Paradox

A situation where collective preferences are inconsistent and cyclical

Arrow Impossibility Theorem

No voting system can perfectly convert individual preferences into a fair group decision

Health Care

Goods and services such as drugs and doctor visits used to maintain or improve health

Production Possibilities Frontier (PPF)

A curve showing the maximum combinations of two goods an economy can produce

Catch-up Effect

The tendency for poorer countries to grow faster by adopting existing technologies from richer countries

Lifestyle Choices

Non-medical factors such as diet smoking and exercise that affect health outcomes

Single-Payer System

A healthcare system where the government provides insurance for all but care is delivered privately

Socialized Medicine

A healthcare system where the government owns hospitals and employs medical staff

Universal Health Insurance

A system where all residents are required to have insurance either private or nonprofit

Fee-for-Service

A payment system where providers are paid for each service performed

Supplier-Induced Demand

When doctors influence patients to consume more care than necessary to increase revenue

Wait Times

A non-price method of rationing healthcare services often used in government systems

Asymmetric Information

When one party in a transaction has more information than the other

Adverse Selection

A problem where high-risk individuals are more likely to buy insurance than low-risk individuals

Moral Hazard

A problem where individuals take more risks because they are protected by insurance

Lemons Problem

A situation where low-quality goods or high-risk individuals drive high-quality goods or low-risk individuals out of the market

Principal-Agent Problem

When an agent acts in their own interest instead of the person they represent

Defensive Medicine

Ordering extra tests or procedures to avoid lawsuits rather than for medical necessity

Deductible

The amount a person must pay out of pocket before insurance begins covering costs

Coinsurance

The percentage of costs a patient must pay after meeting the deductible

Copayment

A fixed fee paid at the time of receiving a healthcare service

Premium

The regular payment made to maintain an insurance policy

Risk Pool

A group of individuals whose healthcare costs are shared to determine premiums

Death Spiral

A cycle where rising premiums cause healthy people to drop out leading to even higher premiums

Affordable Care Act (ACA)

A 2010 US law aimed at expanding healthcare coverage and regulating insurance markets

Individual Mandate

A requirement that individuals have insurance or pay a penalty designed to prevent adverse selection

Employer Mandate

A requirement that large employers provide health insurance to employees

Health Insurance Marketplace

Government platforms where individuals can compare and purchase insurance plans

Pre-existing Condition

A health condition present before obtaining insurance which insurers cannot deny coverage for under the ACA

Canada

Canada [A single-payer healthcare system where the government provides insurance for all citizens but care is delivered by private providers with low costs and longer wait times

UK

A socialized medicine system where the government owns hospitals and employs doctors providing universal care funded by taxes

Germany

A universal health insurance system where individuals are required to have nonprofit insurance through competing sickness funds with regulated prices

Japan

A universal health insurance system with mandatory coverage where providers are private but prices are strictly regulated by the government - Universal private systems

The United States of America

A mixed healthcare system with private insurance public programs like Medicare and Medicaid and no fully universal coverage leading to high costs and uneven access

Medicare (United States)

A government program providing health insurance primarily for people age 65 and older

Medicaid (United States)

joint federal and state program providing health insurance for low-income individuals

Affordable Care Act System (United States)

A reform system that expands coverage through mandates subsidies and insurance marketplaces while maintaining private insurance