Chapter 5

Question 0

externality

Answer 0

a consequence of an economics activity that spills over to affect third parties. pollution is an externality

Question 1

market failure

Answer 1

a situation in which the market economy leads to too few or too many resources going to a specific economic activity

Question 2

third parties

Answer 2

parties who are not directly involved in a given activity or transaction

Question 3

property rights

Answer 3

the rights of an owner to use and to exchange property

Question 4

effluent fee

Answer 4

a charge to a polluter that gives the right to discharge into the air or water a certain amount of pollution; also called a pollution tax

Question 5

antitrust legislation

Answer 5

laws that restrict the formation of monopolies and regulate certain anticompetitive business practices

Question 6

monopoly

Answer 6

a firm that can determine the market price of a good.In the extreme case,a monopoly is the only seller of a good or service

Question 7

private goods

Answer 7

goods that can be consumed by only one individual at a time. private goods are subject to the principle of rival consumption

Question 8

principle of rival consumption

Answer 8

the recognition that individuals are rivals in consuming private goods because one person’s consumption reduces the amount available for others to consume

Question 9

public goods

Answer 9

goods for which the principle of rival consumption does not apply; they can be jointly consumed by many individuals simultaneously at no additional cost and with no reduction in quality or quantity. Also no one who fails to help pay for the good can be denied the benefit of the good.

Question 10

exclusion principle

Answer 10

the principle that no one can be excluded for the benefits of a public good, even if that person has not paid for it

Question 11

free-rider problem

Answer 11

a problem that arises when individuals presume that others will pay for public goods so that, individually, they can escape paying for their portion without causing a reduction in production

Question 12

merit good

Answer 12

a good that has been deemed socially desirable through the political process.museums are an example

Question 13

demerit good

Answer 13

a good that has ben deemed socially undesirable through the political process. Heroin is an example

Question 14

transfer payments

Answer 14

money payments made by governments to individuals for which no services or goods are rendered in return. Examples are SocialSecurity old-age and disability benefits and unemployment insurance benefits

Question 15

transfers in kind

Answer 15

payments that are in the form of actual goods and services, such as food stamps, subsidized public housing, and medical care, and for which in return no goods or services are rendered in return

Question 16

collective decision making

Answer 16

how voters, politicians, and other interested parties act and how these actions influence non-market decisions.

Question 17

theory of public choice

Answer 17

the study of collective decision making

Question 18

incentive structure

Answer 18

the system of rewards and punishments individuals face with respect to their own actions

Question 19

government or political, goods

Answer 19

goods (and services)provided by the public sector;they canbeeither private or public goods

Question 20

majority rule

Answer 20

a collective decision-making system in which group decisions are made on the basis of more than 50 percent of the vote. In other words, whatever more than half of the electorate votes for, the entire electorate has to accept

Question 21

proportional rule

Answer 21

a decision-making system in which actions are based on the proportion of the “votes” cast and are in proportion to them. in a market system,if10 percent of the “dollar votes” are cast for blue cars, 10percent of the out put will be blue cars