All Flashcards
What are the key differences between private costs/benefits and social costs/benefits?
Private costs and benefits only consider the impact on the individuals involved in the transaction, while social costs and benefits consider the impact on society as a whole.
How do progressive and regressive taxes differ in their impact on different income groups?
Progressive taxes take a higher percentage of income from higher earners, while regressive taxes take a higher percentage of income from lower earners.
What are the differences between rivalrous and non-rivalrous goods?
Rivalrous goods are consumed by one individual and cannot be consumed by another, while non-rivalrous goods can be consumed by multiple individuals simultaneously.
What are the differences between excludable and non-excludable goods?
Excludable goods allow providers to prevent consumption by those who do not pay, while non-excludable goods do not allow providers to prevent consumption.
Compare and contrast positive and negative externalities.
Positive externalities confer benefits on third parties, leading to underproduction, while negative externalities impose costs on third parties, leading to overproduction.
How does the unregulated quantity differ from the socially optimal quantity?
The unregulated quantity is what the market produces without intervention, which is often not socially optimal, while the socially optimal quantity is where MSB = MSC.
Define Social Efficiency.
When Marginal Social Benefit (MSB) equals Marginal Social Cost (MSC).
What is Market Failure?
When the free market doesn't produce the socially optimal quantity.
Define Negative Externality.
Costs imposed on a third party not involved in a transaction.
Define Positive Externality.
Benefits conferred on a third party not involved in a transaction.
What is a Private Good?
Rivalrous and excludable.
What is a Public Good?
Non-rivalrous and non-excludable.
Define Unregulated Quantity.
Quantity the market produces without government intervention.
Define Fair Return Quantity.
Quantity allowing firms to cover costs and earn a normal profit.
Define Socially Optimal Quantity.
Quantity where MSB = MSC.
Define Lorenz Curve.
A graph showing the distribution of wealth in a country.
Define Gini Coefficient.
A number between 0 and 1 measuring inequality.
Define Progressive Tax.
Higher earners pay a higher percentage of their income in taxes.
Define Regressive Tax.
Lower earners pay a higher percentage of their income in taxes.
How can a per-unit subsidy correct the market failure associated with positive externalities like vaccinations?
A per-unit subsidy can increase the quantity of vaccinations to the socially optimal level by shifting the MPB curve closer to the MSB curve.
What is the impact of progressive taxes on income inequality?
Progressive taxes can reduce income inequality by redistributing wealth from higher earners to lower earners through government programs.
How can government intervention address the underproduction of public goods?
Government intervention can address the underproduction of public goods by directly providing the goods or subsidizing their production.
What is the goal of government intervention in markets with externalities?
The goal is to achieve social efficiency by producing where MSB = MSC, correcting for overproduction (negative externalities) or underproduction (positive externalities).
How might regulations be used to address negative externalities?
Regulations can limit the amount of pollution a factory can emit, forcing the firm to internalize some of the external costs.
How does a flat tax differ from a progressive tax in terms of income redistribution?
A flat tax applies the same percentage to all income levels and does not redistribute income, while a progressive tax redistributes income from higher to lower earners.