1. Intro

Question 1

What is public economics?

Answer 1

The role of the government in the economy

Question 2

How much of National income do governments collect in taxes?

Answer 2

30-50%

Question 3

What are the main market failures?

Answer 3

•externalities
•imperfect competition
•imperfectic or asymmetric info
•individual failures- people aren’t rational

Question 4

When is the tax and transfer system progressive?

Answer 4

If the inequality in the tax system state is less than it would be otherwise

Question 5

How are direct effects defined?

Answer 5

Effects of the intervention if individuals don’t change their behaviour in response to the intervention

Question 6

How are indirect effects defined?

Answer 6

Effects born out of changes in behaviour as a result of the gov intervention (unintended effects)

Question 7

Theoretical tools

Answer 7

Tools designed to understand the mechanics behind economic decision making

Question 8

Normal goods

Answer 8

Goods for which demand increases as income increases

Question 9

Inferior goods

Answer 9

Goods for which demand falls as income rises

Question 10

Substitution effect

Answer 10

Holding utility constant, a relative rise in the price of a good will always cause an individual to choose less of that good

Question 11

Income effect

Answer 11

A rise in price of a good will typically cause an individual to choose less of all goods because her income can purchase less than before

Question 12

1st welfare theorem

Answer 12

If there are no externalities, perfect comp, perfect info, and agents are rational then private market equilibrium is Pareto efficient

Question 13

2nd welfare theorem

Answer 13

Any Pareto efficient allocation can be reached by suitable redistribution of initial endowments then letting markets work freely

Question 14

Why doesn’t 2nd welfare theorem work in theory?

Answer 14

Redistribution of initial endowments aren’t feasible. Gov needs to use distortionary taxes and transfers based on economic outcomes which created conflict between efficiency and equity

Question 15

Utilitarian Social welfare function

Answer 15

Where society’s goal is to maximise the sum of individual utilities. If the marginal utility of money decreases with income then the utilitarian criterion redistributes from rich to poor

Question 16

Rawlsian SWF

Answer 16

Society’s goal should be to maximise the well being of its worst off member

Question 17

Just deserts (libertarian)

Answer 17

Individuals should receive compensation congruent to their contributions

Question 18

Commodity egalitarianism

Answer 18

Society should ensure that individuals meet a basic set of needs

Question 19

Equality of opportunity

Answer 19

Individuals should be compensated for inequalities that they aren’t responsible for

Question 20

Correlation

Answer 20

Where two economic variables move together

Question 21

Causation

Answer 21

One variable causes the movement of another variable

Question 22

Identification problem

Answer 22

If two series are correlated, how do you determine whether one series is causing another?

Question 23

Why do we need more than just randomise trials?

Answer 23

External validity and attrition

Question 24

Time series analysis

Answer 24

Co-movement of two series over time

Question 25

Cross sectional regression analysis

Answer 25

Relationship between two or more variables exhibited by many individuals at one point in time

Question 26

Panel data

Answer 26

A dataset in which the behaviour of entities are observed across time

Question 27

Quasi experiments

Answer 27

Changes in the economic environment that created nearly identical treatment and control groups for studying the effect of that environmental stage