Chapter 5 Flashcards
externality
a consequence of an economics activity that spills over to affect third parties. pollution is an externality
market failure
a situation in which the market economy leads to too few or too many resources going to a specific economic activity
third parties
parties who are not directly involved in a given activity or transaction
property rights
the rights of an owner to use and to exchange property
effluent fee
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
antitrust legislation
laws that restrict the formation of monopolies and regulate certain anticompetitive business practices
monopoly
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
private goods
goods that can be consumed by only one individual at a time. private goods are subject to the principle of rival consumption
principle of rival consumption
the recognition that individuals are rivals in consuming private goods because one person’s consumption reduces the amount available for others to consume
public goods
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.
exclusion principle
the principle that no one can be excluded for the benefits of a public good, even if that person has not paid for it
free-rider problem
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
merit good
a good that has been deemed socially desirable through the political process.museums are an example
demerit good
a good that has ben deemed socially undesirable through the political process. Heroin is an example
transfer payments
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
transfers in kind
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
collective decision making
how voters, politicians, and other interested parties act and how these actions influence non-market decisions.
theory of public choice
the study of collective decision making
incentive structure
the system of rewards and punishments individuals face with respect to their own actions
government or political, goods
goods (and services)provided by the public sector;they canbeeither private or public goods
majority rule
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
proportional rule
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
