PUP3002 module C

normative criteria

focuses on what the state of the world should be

positive criteria

focuses on what the state of the world is

pareto criterion

a concept that describes the relative levels of performance among alternative states of allocating goods using the concept of pareto efficiency

pareto improvement

makes at least one individual better off wihout making any individuals worse off

pareto efficient / pareto optimal

an allocation in which no further pareto improvements can be made

kaldor-hicks criterion

suggests that if the beneficiaries of a proposed alternative could hypothetically compensate those who are likely to be made worse off, then we may obtain a Kaldor-Hicks improvement

compensation principle

the notion that beneficiaries of some alternative are able to hypothetically compensate those worse off

market

any institution or operation wherein individuals can trade goods, services, or information.

determinants in supply

a variety of factors that drive the level of supply for a good (productive capacity, technology, factor prices, etc.) except the price of the good

change in the quantity supplied 

sellers willing to increase/decrease supply for a given good of the price

change or shift in supply

when we allow a determinant of supply to change

determinants of the demand

a variety of factors that drive the demand of a good (buyer’s income, value of other substitutes, etc.) except the price of a good

change in the quantity demanded

when the price of a good changed the number of consumers willing to demand the good

change or shift in demand

when we allow the determinant of demand to change

market equilibrium price

when the price of a good or product is established via perfect competition under the condition that the demand for the good exactly equals the supply of the good,

shortage of supply

if a price is set below the market-clearing price

surplus of supply

if a price is set above the market-clearing price

property rights

the exclusive right to determine how a resource or property is to be used.

rivalrousness

whether a good can be used or consumed by one person while another person is using or consuming that good.

rivalrous good

a good whose use or consumption will limit or eliminate the supply of that specific good to others.

non-rivalrous good

a good whose use does not deplete the availability of the good.

excludability

whether access to a good can be restricted by its owner

excludable good 

a good whose use or consumption by others can be restricted by the owner of the good

non-excludable good

a good whose access cannot be or is exceedingly difficult to deny, regardless of who owns the good. 

private goods

goods that are rivalrous and excludable

common good

resources whose consumption cannot be prevented or excluded

club goods

goods that are excludable and non-rivalrous

public goods

goods that are both non-rivalrous and non-excludable

monopooly

situations where a market only has a single supplier of a good or service there are profound consequences. a situation where a single seller of a good or service faces many buyers.

negative externality

if a third party is harmed or otherwise negatively affected by a transaction to which they were not a party

socialize

in the event of a negative externality, parties externalize or ____ some portion of those costs to others who were not involved

inefficient outcome

too much of a certain good will be produced or consumed relative to the overall costs and benefits to society

information asymmetry

a situation where in the presence of more information about the true quality of the product the consumer would have likely made a different choice that would have improved his or her utility

transaction cost

a cost associated with the eventual provision of a good or service, but not directly related to the creation of the good or service.

search and information costs

any expenditure in time or other resources dedicated to learning about some aspect of the transaction.

bargaining costs

all resources spent on negotiating an acceptable agreement with all parties involved and drawing up the relevant terms of the contract between the parties.

government

a societal institution that organizes the legitimate use of power over those that reside within a set of geographic borders.

tax subsidy

either a direct or indirect payment from the government to an individual or business with the purpose of altering the behavior of that individual or business for some societal goal.

unintended consequences 

any set of changes that adversely affect policy outcomes resulting from a policy intervention that were not anticipated by the policy’s advocates.

government regulations

rules of operation that either ban a particular good or service, or proscribe the manner in which goods or services will be provided.

government failure

when government interventions in the economy actually create a new set of inefficiencies that may rival the very market inefficiency that they were set up to address.

social welfare function

translates individual preferences over a set of policy visions or social states into a social ordering.

condorcet’s paradox

under certain conditions group preferences might not be transitive despite each individual member of the group possessing transitive preferences.

condorcet winner

a policy that would defeat all other policies in pairwise majority contests,

market distortion

a situation where some incident has caused the market price to be either higher or lower than the price that would have been obtained in the presence of a perfectly competitive market (i.e. when demand meets supply in the presence of a “perfectly competitive market”).

common pool resources

natural or human-made goods that are renewable or replenishable, but can be exhausted from overuse.