Negative externality
when someone uses a product, it decreases the benefit of others
Positive externality
when one uses a product, others benefit
Lorenz curve
measures the distribution of income equality (you want to be as close of possible to the perfect equality line as possible)
Regressive
taxes are lower % on people earning a higher income (increases income inequality)
Progressive
axes are higher % on people earning a higher income (reduces income inequality)
Public goods
underproduced due to freeloader problem.
Social efficiency
is when resources are allocated effectively.
Non price regulation
works like taxes, they ensure competition /environmental protection /health and safety.
Lump sum subsidy
gives benefit no matter how many units.
Freeloader problem
people can enjoy the benefit of a good /service without paying.
Proportional
everyone pays the same percentage of their income (no impact on income distribution)
Rivalrous good
if someone consumers a product, others can not.
Per unit subsidy
gives benefits per unit.
Monopolistic competition
becomes MR curve, price and output decreases.
Excludable good
non payers can be prevented from enjoying the benefits.
Antitrust policy
promote competition and prevents monopolies.
Income distribution
measures % of income that goes to individuals in different percentiles /brackets.
Perfectly competitive market
S=D, MB=MC
Perfectly competitive firm
P=MC
Market failure
exists when firms produce at MPC=MPC, S=D
Externality
when external cost/benefit is placed on members of society who did not pay for them
Negative externality
when someone uses a product, it decreases the benefit of others (ex
Positive externality
when one uses a product, others benefit (ex
Rivalrous good
if someone consumers a product, others cannot
Rivalrous
food, shoes, etc
Nonrivalrous
national defense, fireworks, etc
Excludable good
non payers can be prevented from enjoying the benefits
Excludable
food, school, etc
Nonexcludable
national defense, air, etc
Public goods
underproduced due to freeloader problem
Freeloader problem
people can enjoy the benefit of a good/service without paying
Private goods
goods produced by private markets, can be excludable
Per unit subsidy
gives benefits per unit
Perfect competition
MC, ATC, AVC decreases, price doesnt change (price taker)
Monopolistic competition
MC, ATC, price decreases (price maker @ MR=MC)
Lump sum subsidy
gives benefit no matter how many units
Per unit tax
increase MC, ATC, and AVC
Perfect competition
MC, ATC, AVC increases, price doesnt change (price taker)
Monopolistic competition
MC, ATC, price increases (price maker @ MR=MC)
Lump sum tax
only increase ATC
Non price regulation
works like taxes, they ensure competition/environmental protection/health and safety
Antitrust policy
promote competition and prevents monopolies
Price ceiling
sets minimum price
Perfect competition
causes shortage
Monopolistic competition
becomes MR curve, price and output decreases
Price floor
sets maximum price
Perfect competition
leads to surplus
Monopsony
wages go up and workers go up
Income distribution
measures % of income that goes to individuals in different percentiles/brackets
In a system with perfectly equality
everyone would receive equal shares of income
Income
wages, rent, interest, profit
Lorenz curve
measures the distribution of income equality (you want to be as close of possible to the perfect equality line as possible)
Proportional
everyone pays the same percentage of their income (no impact on income distribution)
Progressive
taxes are higher % on people earning a higher income (reduces income inequality)
Regressive
taxes are lower % on people earning a higher income (increases income inequality)