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government
only organization with the power to compel actions
public good
a good that is both nonrival and nonexcludable
nonrival good
one whose consumption by one person does not diminish its availability to others
national defense, street light
non-excludable good
one that is difficult or costly to exclude non-payers from consuming
over-the-air broadcasts
fireworks displays
pure public good
both nonrival and nonexcludable
free-rider problem
not everyone will pay their share if they can get something for free
if a good is non-excludable, it is hard to make everyone pay
zero
marginal cost of public goods is _____ due to non-rivarly
collective good
a good or service that, to some degree, is nonrival but excludable
sometimes provided by government
pure private good
non-payers can easily be excluded
each unit consumed by one person means one less unit available for others
pure commons good
rival good that is non-excludable
results in a tragedy of the commons
fish in open water
cost of public good
sum of the explicit and implicit costs incurred to produce it
highest price someone would pay
benefits of an additonal unit of a private good
sum of the reservation of all people who use it
benefits of an additional unit of a public good
head tax
tax that collects the same amount from every taxpayer
majority of affected parties must agree
regressive tax
tax rate that varies inversely with income
proportional income tax
requires all taxpayers to pay the same proportion of their incomes in taxes
jointly consumed goods
_____ must be provided in the same quantity and quality for all
higher income groups
______ will not the get the amount of public goods they demand
progressive taxes
______ take a larger share of higher incomes as tax
advantages of government provision
low cost to collect additional revenue
expedient: no negotiations over distribution of costs
only feasible provider for nonexcludable goods
disadvantages of government provision
one-size-fits-all
some pay for goods they don’t want
some don’t get goods they would pay for
taxation is coercive
two roles of government
regulation of activities that generate externalities
defining and enforcing property rights that allows private markets to function