by tkutch


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Resource Allocation Methods
Market Price, Command, Majority Rule, Contest, First-come, first-served, Sahring equally, Lottery, Personal characteristics, force
Command System
A system that allocates resources by the order of someone in authority
Allocative Efficiency
A situation in which the quantities of goods and services produced are those that people value most highly - it is not possible to produce more of a good or service without giving up some of another good that people value more highly
Marginal Benefit
The benefit that arises from a one-unit increase in an activity. The marginal benefit of something is measured by what you are willing to give up to get one additional unit of it.
Marginal Cost
The opportunity cost that arises from a one-unit increase in an activity. The marginal cost of something is what you must give up to get one additional unit of it. The marginal cost of producing a good is the change in total cost that results from a one-unit increase in output.
Consumer Surplus
The marginal benefit from a good or service minus the price paid for it, summed over the quantity consumed.
Producer Surplus
The price of a good minus the marginal cost of producing it, summed over the quantity produced.
Total Surplus
The sum of consumer surplus and producer surplus.
Deadweight loss
The decrease in total surplus taht results from an inefficient underproduction or overproduction.
Obstacles of Efficiency
Price and quantity regulations, Taxes and subsidies, Externalities, Public goods and common resources, Monopoly, High transactions costs
Price and quantity regulations remedy
Remove regulation by majority rule
Taxes and subsidies remedy
Minimize deadweight loss by majority rule
Externalities remedy
Minimize deadweight loss by majority rule
Public goods remedy
Allocate by majority rule
Monopoly remedy
Regulate by majority rule
High transactios costs remedy
Command or first-come, first served
Big tradeoff
A tradeoff between efficiency and fairness that recognizes the cost of making income transfers.
Price ceiling
A government regulation taht places and upper limit on the price at which a particular good, service, of factor production may be traded.
Rent ceiling
A regulation that makes it illegal to charge more than a specified rent for housing.
Black market
An illegal market that operates alongside a government-regulated market.
Search activity
The time spent looking for someone with whom to do business.
Price floor
A government regulation that places a lower limit on the price at which a particular good, service, of factor of production may be traded.
Minimum wage law
A government regulation that makes hiring labor for less than a specified wage illegal.
Illegal hiring
Hiring workers at an illegal wage rate below the minimum wage in a black market.
Price support
A price floor in an agricultural market maintained by a government guarantee to buy any surplus ouput at that price.
Subsidy
A payment by the government to producer to cover part of the cost of production.
Tax incedence
The division of the burden of a tax between the buyer and seller.
Excess burden
The amount by which the burden of a tax exceeds the tax revenue received by the government - the deadweight loss from a tax.
Taxable income
Total income minus a personal exemption and a standard deduction (or other allowable deductions).
Marginal tax rate
The percentage of an additional dollar of income taht is paid in tax.
Average tax rate
The percentage of income that is paid in tax.
Progressive tax
A tax whose average rate increases as income increases.
Proportional tax
A tax whose average rate is constant at all income levels.
Regressive tax
A tax whose average rate decreases as income increases.
Benefits principle
The proposition that people should pay taxes equal to the benefits they receive from public goods and services.
Ability-to-pay principle
The proposition that people should pay taxes according to how easily they can bear the burden.
Horizontal equity
The requirement that taxpayers with the same ability to pay should pay the same taxes.
Vertical equity
The requirement that taxpayers with a greater ability to pay bear a greater share of the taxes.
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