POLS 3313: Public Policy Analysis Key Terms

What is Policy Analysis?

The systematic process of using evidence and critical thinking to assess policy alternatives. It is problem orientated, multidisciplinary, and invoves both technical and socio-political aspects.

What are Incentives?

Forces that attract or repel people, causing them to change their behavior.

What are the three types of incentives?

Economic, social, and moral.

What is opportunity cost?

The cost of giving up the next best alternative when making a decision.

What is scarcity?

Not enough of something to satisfy unlimited human wants and needs in a world of limited resources.

What is market?

A “place” where buyers and sellers come together to engage in voluntary exchange.

What is Utility?

The usefulness, satisfaction, or benefit a consumer recieves from a good or service.

What is marginal?

A term associated with the last unit used, produced, or consumed. 

What is the Law of Diminishing Marginal Returns?

As you increase one factor of production (like labor), the additional output from each additional unit of that factor will eventually decrease.

What is demand?

The amount of good or services that consumers will buy at various prices.

What is supply?

The amount of good or service that sellers will provide at various prices.

What is Law of Demand?

If the price of a good increases, the quantity demanded will decrease.

What is Law of Supply?

If a price of a good increases, the quantity supplied will also increase.

What is Equilibrium?

The point where the quantity supplied equals the quantity demanded at a given price.

What is Surplus?

When the quantity supplied is greater than the quantity demanded, which puts downward pressure on the price.

What is a Shortage?

When the quantity demanded is greater than the quantity supplied, which puts upward pressure on the price.

What is the Consumer surplus?

The increase in a consumer’s welfare from a transaction, it’s the difference between the value they place on a good and the price they actually pay.

What is Producer Surplus?

The increase in a producer’s welfare from a transaction, it’s the difference between the price they receive and their production costs.

What is the Deadweight Loss?

A loss of economic efficiency that occurs when equilibrium for a good or service is not achieved. Some potential gains from trading are not realized.

What is a Free Rider?

A person who benefits from a public good but does not pay for it. This is a common issue with non-exckudable goods.

What is the Tragedy of the Commons?

A situation where individuals, acting in their own self-interest, over-consume and deplete a shared, unregulated resource (a common-pool resource) because no one owns it.