WK 5 Political Economy

public goods

non-excludable: no one can be excluded from using the good

non-rivalrous: one’s person’s use does not reduce the availability for others

private goods

Excludable: Sellers can prevent those who do not pay from using the good.

Rivalrous: One person’s use of the good reduces its availability to others.

examples of public goods

national defense, clean air, public parks

examples of private goods

food, clothing, electronics

Gross Domestic Product (GDP)

The total monetary value of all finished goods and services produced within a country during a specific period.

GDP per Capita

Divides the GDP by the population, giving an average measure of the wealth per person. It’s used to compare the relative prosperity of countries.

Purchasing Power Parity (PPP)

Adjusts GDP for differences in price levels between countries. This helps to compare how much goods and services a certain amount of currency will buy in different countries.

Human Development Index (HDI)

A composite measure that includes life expectancy, education, and per capita income indicators. Provides a more holistic view of well-being, rather than just economic output.

inequality

Refers to the uneven distribution of resources, wealth, and opportunities among individuals or groups in society. High inequality can lead to social unrest, hinder economic growth, and reduce the overall quality of life.

Gini Index (or Gini Coefficient)

Measures income or wealth distribution. A Gini index of 0 represents perfect equality (everyone has the same income), and 1 represents extreme inequality (one person has all the income)

Ratio of the Richest 10% to the Poorest 10%

This measures the gap between the richest and poorest segments of the population. A higher ratio indicates greater inequality.

Market (Gross) Income Inequality

Refers to income inequality before accounting for taxes and transfers (e.g., welfare, unemployment benefits, etc.). It measures how income is distributed in the market.

Net Income Inequality

Refers to income inequality after taxes and government transfers are taken into account. These policies typically reduce inequality by redistributing wealth from the rich to the poor through taxes and welfare programs.

Market Across Countries

Countries with more robust welfare states (like Scandinavian countries) tend to have higher market inequality but lower net inequality, thanks to redistributive policies such as progressive taxes and generous social welfare programs.

Net Income Inequality across countries

Countries with weaker welfare systems (like the US) often show high market inequality, and their net inequality remains relatively high because of limited redistribution.

graph interpretation

A graph comparing the Gini coefficient for market and net incomes will show a larger gap in countries with less effective redistribution policies.

Redistribution success

often visually demonstrated in such graphs, where the difference between the market and net income Gini indices can highlight the role of social safety nets in reducing inequality.