Economics Flashcards

Vocabulary flashcards for economics exam review.

What is a Negative Production Externality?

A third party or spillover external cost arising from the production of a good for which no compensation is paid, such as pollution.

What is a Negative Consumption Externality?

A third party or spillover external cost arising from the consumption of a good for which no compensation is paid, such as tobacco consumption causing passive smoking.

What is Social Benefit?

Private benefit + external benefit.

What is Social Cost?

Private cost + external cost.

What is MPC (Marginal Private Cost)?

All the costs of producing one more unit of the good to the producer.

What is MSC (Marginal Social Cost)?

All the costs of producing one more unit of the good to society.

What is MPB (Marginal Private Benefit)?

All the benefits of consuming one more unit of the good to the consumer.

What is MSB (Marginal Social Benefit)?

All the benefits of consuming one more unit to society.

What is a Positive Consumption Externality?

A third party or spillover external benefit arising from the consumption of a good for which no compensation is paid e.g. vaccination, healthcare & hygiene, public transport.

What is a Positive Production Externality?

A third party or spillover external benefit arising from the production of a good for which no compensation is paid e.g. R&D, training and education.

What are Private Goods?

Goods and services supplied and sold through markets by private sector businesses that are excludable, rival, and rejectable

Who is a Free Rider?

Someone who consumes a good without paying for it, especially relevant in the context of public goods.

What are Public Goods?

Goods that are non-excludable and non-rival, meaning that once provided, it is impossible to prevent people from using them, and one person's consumption does not reduce availability to others.

What is a Quasi Public Good?

Has some, but not all public good characteristics i.e. it has one or other characteristics, or has both some of the time, but not all of the time. e.g. TV & radio broadcasting, toll bridge

What is Information Failure?

Occurs when people have inaccurate, incomplete, uncertain, or misunderstood data and so make potentially 'wrong' choices, leading to a misallocation of scarce resources.

What is Asymmetric Information?

Buyers and sellers have different amounts of information e.g. buyers often know less than sellers when buying second-hand cars; buyers often know more than sellers when buying car insurance

What is Adverse Selection?

People taking out insurance are often those at highest risk e.g. a person leading an unhealthy lifestyle is more likely to take out health insurance, meaning more payouts for insurance company

What is Moral Hazard?

Being insured can make you more careless e.g. banks made risky decisions before the global financial crisis aware that they would likely receive bail-outs

What is the Principal-agent Problem?

Goals of the principals, those who lose/gain from a decision, are different from the agents, those making the decisions e.g. managers (agents) may have more information than shareholders (principals)

What is Tragedy of the Commons?

When no one owns a resource, it may get over-used, for example fish stocks and deforestation - people use and benefit from a common pool resource such as grazing land without regard to the effects on others

What is a Green Tax?

An indirect tax on producers that raises the price of emissions.

What is a Tradeable Permit Scheme?

A market-based system for reducing greenhouse gas emissions where companies are issued permits, or allowances, to emit a certain amount of CO_2, and can trade these permits.

What is an Indirect Tax?

Tax imposed on producers (suppliers) by the government; producers may be able and choose to pass on some or all an indirect tax to their customers by raising prices.

What is a Specific Tax?

A fixed amount of tax per unit of the good or service sold, leading to a parallel shift in the supply curve.

What is an Ad Valorem Tax?

A percentage tax on the value of the good or service, leading to a pivotal shift in the supply curve.

What are Producer Subsidies?

Payments to producers by the government to reduce the costs of production e.g. subsidies for renewable energy; shifts supply right

What are Consumer Subsidies?

Payments to consumers to allow them to purchase more of a good/service e.g. childcare vouchers; shifts demand right

What is a Maximum Price?

The price cannot rise to remove the excess demand – it has lost its rationing function

What is a Minimum Price?

The price cannot fall to remove the excess supply – it has lost its signalling and incentivising functions

What is Government Failure?

Government intervention worsens the allocation of scarce resources

What are Unintended consequences?

Outcomes that were not foreseen and intended by the government action

What is Rationality?

An underlying assumption in economics is that economic agents are said to be rational and Consumers aim to maximise their utility from consumption

What is Irrational behavior?

When people make systematic and persistent deviations from rational choice.

What are Time lag problems?

Between planting a cereal crop and when has grown and ready to supply, can cause price fluctuations in a market.