Chapter 2 B Flashcards
What is opportunity cost?
te value of the best FORGONE alternative
-resources are limited. policy should be undertaken if the benefits exceed the costs.
What do normative and positive analysis depend on? (4)
Opportunity cost
Marginalism
Incentive effects
Economic efficiency
What is Marginalism?
price is determined by marginal value, not total value.
MV is the cost of acquiring an additional unit
Policies should only be implemented if the MB>MC or if the marginal benefit exceeds that of the marginal value of the alternative activity.
Economic Incentives is what?
reacting to what is in our best economic interest.
we must expect individuals to follow the economic incentives.
effects of the incentives must be calculated.
watch for adverse effects, policy wonks that apply own judgement, ad policy ideology.
What are government buyout packages and why are they bad?
they pay workers to leave. typically a salary. tend to make people get another job (usually replacing themselves at the original establishment)so it doesn’t save the company money. plus, typically the best workers leave so it’s inefficient.
What is economic efficiency ?
can be either productional or allocational.
management efficiency is productional. basically implies that resources are not being wasted.
if inefficient, more money and resources being used that necessary.
Allocational is the absence of waste. resources are allocated in a way that it’s impossible to make anyone better off without making someone worse off.
What is the Pareto efficiency?
a allocational efficiency. absence of waste.
Why is it foolish or people to ask for the best health care possible?
it would mean hospital on every few blocks. the costs would be incredibly high, and would leave all other programs broke. taxes would hve to be increased as well.The opportunity cost would be too high
What is Pareto improvement?
When doing something can make someone better off without harming anyone. takes over a bit of the DWL area
