ECON_7

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22 Terms

1

Positive analysis

Describes what will happen if a certain policy is adopted, focusing on objective forecasts and effects.

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2

Normative analysis

Assesses what should happen, requiring value judgments about the outcomes of policies.

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3

Economic efficiency

A criterion to evaluate policies based on the generation of economic surplus; more surplus equals a better outcome.

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4

Economic surplus

Measures the benefits that follow from a decision, less the costs incurred.

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5

Underproduction

Occurs when the actual quantity produced is less than the efficient quantity, leading to deadweight loss.

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6

Overproduction

Occurs when the actual quantity produced is greater than the efficient quantity, also leading to deadweight loss.

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7

Deadweight loss

The difference between the largest possible economic surplus at the efficient quantity and the actual economic surplus.

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8

Equity

Concerns whether a policy yields a fair distribution of economic benefits.

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9

Market power

When a small number of sellers dominate a market, undermining competitive pressures and leading to inefficiencies.

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10

Externalities

Side effects of economic transactions that affect third parties, potentially leading to market failure.

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11

Rational Rule for Markets

The principle that states to produce until marginal benefit equals marginal cost for maximum economic surplus.

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12

Inefficient outcome

Results from market failures where supply and demand do not lead to maximum economic surplus.

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13

Willingness to pay

The maximum price a buyer is willing to pay for a good, reflecting their marginal benefit.

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14

Process vs. Outcomes

An important distinction where some believe that how a decision is made (the process) matters more than the outcomes it produces.

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15

Government failure

Occurs when government policies lead to worse outcomes than those produced by market forces.

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16

Distributional consequences

Effects of new policies regarding who gets what and whether the distribution seems fair.

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17

Value judgment

A personal assessment regarding whether something is good or bad, often influencing normative analysis.

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18

Minimum wage

A legal floor on the wage rate that can be paid to workers, often debated in terms of its impacts on employment and welfare.

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19

Market failure

A situation where market forces fail to produce an efficient outcome, often leading to inefficiencies and lost surplus.

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20

Self-interest

The pursuit of one's own benefits, which can lead to overall efficient outcomes in a competitive market despite individual participants not coordinating.

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21

Public policy

Decisions and actions taken by the government to address public issues and regulate various aspects of economic and social life.

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22

Value judgments

Assessments regarding the merits of an outcome based on personal or societal values, influencing normative analysis.

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