U11-Government and Public Sector: Market Failure, Externalities, Public Goods, Efficiency

government involvement can help correct

market failurs

government involvement can lead to (think MSB and MSC)

MSB = MSC

positive externality

MSB > MSC

government can correct positive externality by

giving producer or consumer per-unit subsidy

negative externality

MSB < MSC

government can correct negative externality by

giving producer or consumer per-unit tax

deadweight loss is pointing where in positive externality?

right

deadweight loss is pointing where in negative externality?

left

private good

excludable and rival

public good

nonexcludable and nonrival

disadvantage of public good

firms have no incentive to produce

demand is ____ in public good market

nonexistent

who pays for public good to be produced?

government

Lorenz Curve

graphical representation of income inequality

when the Lorenz curve is more outwards, there is

more income inequality

when the Lorenz curve is more inwards, there is

less income inequality

when the Gini Coefficient is closer to 0, there is

less income inequality

when the Gini Coefficient is closer to 1, there is

more income inequality

progressive tax

more tax rate for more income

proportional tax

equal tax rate for all income

regressive tax

more tax rate for less income (like sales tax)

a scarce good is a good where

quantity demanded is higher than quantity supplied when the price is $0

what is an excludable good?

goods that you must pay to enjoy

two examples of excludable goods includes

subscriptions and bananas

rival goods

one person’s consumption affects the other’s ability to enjoy it

example of rival goods

LIMITED amount of free watermelons next to the road