Public Policy and Economic Concepts

A collection of flashcards summarizing key public policy and economic concepts relevant for exam preparation.

Public Policy

Government decisions and actions meant to solve public problems.

Economic Systems

Ways societies organize the production and distribution of goods; includes capitalism and socialism.

Capitalism

An economic system where private ownership and market decisions determine production.

Socialism

An economic system where the government controls production and distribution.

Market

A system where buyers and sellers exchange goods.

Utility

Satisfaction or happiness gained from consuming goods.

Willingness to Pay

The maximum amount someone is willing and able to pay for a good or service.

Net Benefit

The difference between benefits and costs of a project or action.

Opportunity Cost

The value of the next best alternative that is forgone.

Incentives

Factors that motivate individuals to change their behavior.

Adam Smith

Known as the father of modern economics; introduced the concept of the invisible hand.

Principal-Agent Problem

A situation where one party makes decisions on behalf of another, which can lead to conflicts of interest.

Prisoner’s Dilemma

A situation in which individuals acting in their own self-interest lead to a worse outcome.

Commons Problem

A situation where shared resources are overused and depleted.

Free Rider Problem

When individuals benefit from a resource without contributing to its cost.

Types of Goods

Categories of goods based on their characteristics, such as private, public, club, and common goods.

Market Failure

When markets fail to allocate resources efficiently, often due to externalities or monopolies.

Monopolies

Market structures where a single firm dominates the market, leading to high prices and low innovation.

Externalities

Costs or benefits incurred by a third party who did not choose to incur those costs or benefits.

Private vs Social Cost

Private cost pertains to the cost incurred by producers, while social cost includes all costs to society.

Inequality

The uneven distribution of income among a population.

Social Mobility

The ability of individuals to move between income levels within a society.

Liberalism

A political philosophy centered on protecting individual liberties.

Illiberal Democracy

A system with elections but inadequate protections for civil rights.

Authoritarian Tactics

Strategies used by authoritarian regimes to maintain control over society.

Crony Capitalism

An economic system characterized by collusion between business leaders and government officials.

Rent Seeking

The practice of using government influence to gain financial benefits without adding value.

Moral Hazard

Increased risk-taking behavior when individuals do not bear full costs.

Taxes and Incentives

Taxes designed to influence behavior, such as reducing consumption of harmful products.

Marginal Tax Rate

The tax rate applied to the next dollar of income earned.

Growth vs Government Programs

Both can reduce poverty through job creation and support for low-income households, respectively.

Pigouvian Taxes

Taxes intended to correct negative externalities, making producers pay the true social cost.

Cap and Trade

A system that allows firms to buy and sell permits for pollution emissions within a regulated limit.

Coase Theorem

The theory that externalities can be resolved through negotiation if property rights are defined and transaction costs are low.

Limits of Coasian Bargaining

Conditions under which negotiation to resolve externalities fails, such as many parties involved.

Policy Tools

Various government solutions for public issues, including taxes, subsidies, regulations, and public programs.

Inequality Solutions

Strategies to address economic inequality, including progressive taxation and social programs.

Brain Drain

The emigration of skilled professionals seeking better opportunities elsewhere.

Inflation Reduction Act

A policy aimed at reducing emissions and supporting clean energy through subsidies and tax credits.