Ch 18 Microeconomics

Public choice model

A model that applies economic analysis to government decision making. ("The public choice model is a model that applies economic analysis to government decision making.")

Voting paradox

The failure of majority voting to always result in consistent choices. ("This is known as the voting paradox...")

Arrow Impossibility Theorem

A theorem stating no voting system can consistently represent underlying voter preferences. ("No system of voting can be devised that will consistently represent the underlying preferences of voters.")

Median voter theorem

The proposition that majority voting outcomes reflect the preferences of the median voter. ("The outcome of a majority vote is likely to represent the preferences of the voter who is in the 'political middle'.")

Rent-seeking

Attempts by individuals or firms to use government action to make themselves better off at the expense of others. ("Rent-seeking refers to attempts by individuals and firms to use government action...")

Logrolling

Politicians trading votes to gain support for their proposals. ("Politicians gain support... by offering to support those of their colleagues. This is known as logrolling.")

Rational ignorance

When voters remain uninformed because the cost of information exceeds the expected benefit. ("Many voters remain rationally ignorant of such 'irrelevant' ideas.")

Regulatory capture

When regulatory agencies act in the interest of the firms they regulate. ("An agency... acting more in the interest of the firms... has been subject to regulatory capture.")

Social insurance taxes

Taxes used to fund Social Security and Medicare. ("Social insurance... constitute the majority of the Federal government's tax revenue.")

Regressive tax

A tax where lower-income people pay a higher percentage of income than higher-income people. ("A tax is said to be regressive if people with lower incomes pay a higher percentage...")

Progressive tax

A tax where lower-income people pay a lower percentage of income than higher-income people. ("A tax is said to be progressive if people with lower incomes pay a lower percentage...")

Proportional tax

A tax where all people pay the same percentage of income. ("Taxes... that constitute the same percentage... are proportional.")

Marginal tax rate

The fraction of each additional dollar of income paid in taxes. ("Marginal tax rate: The fraction of each additional dollar...")

Average tax rate

Total tax paid divided by total income. ("Average tax rate: Total tax paid divided by total income.")

Excess burden

The efficiency loss from a tax reducing the quantity of a good produced; deadweight loss. ("Excess burden: A measure of the efficiency loss... also known as deadweight loss.")

Ability-to-pay principle

The idea that those with greater ability to pay should pay more taxes. ("The ability-to-pay principle holds that revenue... ought to mostly be paid by the rich.")

Horizontal-equity principle

The idea that people in the same economic situation should pay similar taxes. ("The horizontal-equity principle holds that people in the same economic situation...")

Benefits-received principle

The idea that people who receive more benefits from government should pay more taxes. ("The benefits-received principle holds that governments ought to charge more...")

Sin taxes

Taxes used to discourage consumption of undesirable goods like alcohol and cigarettes. ("Such taxes are known as sin taxes.")

Tax incidence

The actual division of the burden of a tax between buyers and sellers. ("Tax incidence: The actual division of the burden...")

Poverty line

Income level equal to three times the cost of minimum food needed for adequate nutrition. ("Defined... as below the poverty line, a level of annual income equal to three times...")

Poverty rate

The percentage of the population with income below the poverty line. ("The poverty rate... is the percentage of the population that is poor...")

Gini coefficient

A measure of income inequality based on the Lorenz curve. ("Gini coefficient = A / (A+B)...")

Human capital

The accumulated knowledge and skills workers acquire through education and experience. ("Human capital... the accumulated knowledge and skills...")