Econ Exam 2

Negative externality

A negative externality is a cost imposed on an uninvolved third party due to another party’s economic activity, such as pollution from factories harming nearby residents.

Externality

a side effect or consequence of an industrial or commercial activity that affects other parties without this being reflected in the cost of the goods or services involved, such as the pollination of surrounding crops by bees kept for honey.

in-kind transfer

government assistance provided as a good or service instead of cash.

Marginal social benefit

is the additional benefit to society from consuming or producing one more unit of a good or service.

Normative analysis

an analysis based on opinions or judgments about what should happen.

socially optimal benefit

is the level of production or consumption where marginal social benefit equals marginal social cost.

market determined output

the quantity of a good or service that is produced and sold when the market reaches equilibrium, where quantity demanded equals quantity supplied.

marginal external benefit

the additional benefit received by people other than the consumer or producer when one more unit of a good or service is consumed or produced.

Common resources

• Rival: one person’s use reduces what is available for others.

• Nonexcludable: it is difficult to stop people from using them

Private bargaining works when

• People can clearly identify who has the right to use or control the resource.

• The people involved can negotiate without high legal, time, or communication costs.

marginal private benefit

Marginal Private Benefit (MPB) is the additional benefit that a consumer receives from consuming one more unit of a good or service.

social cost

the total cost to society of producing or consuming a good.

price floor

min legal price

price ceiling

max legal price

The percent of the population whose household income falls below the poverty line is known as the

poverty rate

private goods are

• Rival in consumption: If one person uses the good, less is available for others.

• Excludable: People can be prevented from using the good unless they pay for it.

club goods are

• excludable: People can be prevented from using them if they don't pay.

• Non-rival (or only slightly rival): One person's use does not significantly reduce others' ability to use them.

common resources

• Rival in consumption: One person's use reduces the amount available for others.

• Non-excludable: It is difficult or impossible to prevent people from using them.

public goods are both

non-excludable and non-rival

If price floor is above equilibrium that means

binding and creates surplus

if a price ceiling is below equilibrium then

it is binding and creates shortage

non-rival

(one person's use doesn't reduce others' ability to use it)

non-excludable

Non-excludable means that once a good or service is provided, it is difficult or impossible to prevent someone from using it, even if they do not pay for it.

progressive tax

Higher-income people pay a higher percentage.

regressive tax

Lower-income people pay a higher percentage of their income than higher-income people.

proportional tax

is a tax system where everyone pays the same percentage of their income, regardless of how much they earn.

Rival in consumption

One person's use reduces the amount available for others.