Economics 201: Externalities and Political Action

A comprehensive set of flashcards covering key economic concepts related to externalities and political action.

Economic Efficiency

A situation in which all resources are allocated in a way that maximizes total welfare.

Externalities

Costs or benefits that affect parties who did not choose to incur those costs or benefits.

Negative Externalities

Costs that are suffered by a third party as a result of an economic transaction.

Positive Externalities

Benefits that are enjoyed by a third party as a result of an economic transaction.

Public Goods

Goods that are nonrival and nonexcludable, meaning consumption by one individual does not reduce availability for others.

Free Rider

A person who benefits from a resource, good, or service without paying for it.

Rational Ignorance Effect

The phenomenon where voters do not educate themselves on certain issues because the costs outweigh the perceived benefits.

Median Voter Theorem

A theory that suggests candidates will adopt policies that are favored by the median voter to win elections.

Logrolling

A practice in politics where legislators exchange favors by supporting each other's proposed legislation.

Rent Seeking

The practice of seeking to increase one's share of existing wealth without creating new wealth.

Transaction Costs

The costs associated with making an economic exchange which can inhibit negotiations.

Coase Theorem

A theory that suggests that if property rights are clearly defined and transaction costs are low, bargaining will lead to an efficient outcome.

Bundled Choices

Policies or options that are grouped together in such a way that they must be voted on as a single package.

Voting Paradox

A situation in which collective preferences can be cyclical, making it impossible for a majority to decide on a single option.

Information Problems

Situations in economics where one party has more or better information than the other, leading to inefficiencies.

Transfer Payments

Payments made by the government to individuals without any exchange of goods or services, often used to redistribute wealth.

Shortsightedness Effect

The tendency of voters to favor policies with immediate benefits and ignore long-term consequences.

Special Interest Effect

The influence that special interest groups have on policy decisions that benefit a small group at the expense of the larger community.

User Charges

Fees paid by individuals or firms to use certain public goods or services.