Chapter 5: Ethics

Question 1

External effects what are they

Answer 1

Secondary effects or results of a product that was not intended

Like abuse of pills

Question 2

Welfare economics

Answer 2

Assesses how well the economy allocates its scare resources

Checks if it is efficient and equitable

Question 3

Efficiency in economy

Answer 3

How well resources are used and allocated

Question 4

Equity in economic

Answer 4

How society’s goods and rewards are, and should be distributed

Have to make sure the least people are disappointed

Also concerned with how different generations share economic capabilities

Question 5

Consumer surplus

Answer 5

Demand side of market

The amount ons willing to spend above the equilibrium price

Distance between market price and individual valuation

Question 6

Producer (supplier) surplus

Answer 6

Supply side of market

The amount one is willing to sell below equilibrium price

Excess of market price over the reservation price

Question 7

Reservation prices

Answer 7

Minimum price that suppliers willing to accept

Suppliers will hold back if market price isn’t higher than reservation price

Question 8

Total surplus in market

Answer 8

Sum of all participant’s surpluses

Question 9

Efficient market

Answer 9

Maximizes sum if consumer and supplier surpluses

Question 10

Tax wedge

Answer 10

Difference between consumer and producer prices

Question 11

Revenue burden

Answer 11

Amount of tax revenue raised by a tax

Question 12

Excess burden (deadweight loss)

Answer 12

Second burden of tax

Consumer and supplier surpluses forming a net loss to the economy

Question 13

Distortions

Answer 13

Impact of taxes that make that economy resources indefinitely used

Lead economy away from efficient output

Ressource allocation

Question 14

Externalities

Answer 14

Impacts individuals who are not in the market in question

The effects of externalities may not be captured in the market price

Can creat a difference between private costs or values and social costs or values

Markets characterized by externalities are not efficient

Creates divergence between private costs/benefits and social costs/benefits

Question 15

Corrective tax

Answer 15

Seeks to to direct the market towards a more efficient output

Reduce taxes in one part to increase in another

Some revenue to big g

Question 16

Positive externalities

Answer 16

Individuals or producers get a free ride on the efforts of others

Sometimes, can be so gyu Big G will make sure prices is at 0, like malaria vaccinations

Question 17

Patent laws

Answer 17

Prevent competitors from copying the product development of firms thats invest in Research and Development

Without this, no investment in R & D which is crucial to eocnomy

Question 18

Subsidies

Answer 18

Can be thought of as negative tax

Can stimulate supply of goods and services to have positive externalities

Question 19

Public goods

Answer 19

Many individuals can be supplied with the same good at the same total cost as oneindividual

Question 20

International externalities

Answer 20

Cannot be corrected by national Big G

Question 21

Greenhouse gases consequences

Answer 21

Massive global warming

Strongly correlated with economic growth

Know as common property

Question 22

Common property

Answer 22

Every citizen in the world owns them

Question 23

Marginal damage curve

Answer 23

Cost to society of an additional unit if pollution

Question 24

Marginal abatment curve

Answer 24

Cost of reducing emissions by one unit

Question 25

Optimal quantity of pollution

Answer 25

Marginal cost of abattement equals marginal damage

Question 26

What are tradable permits and corrective/carbon taxes

Answer 26

Market bases systems aimes at reducing GHGs

Question 27

What if all firms have the same GHG limits, what can they do to make it beneficial?

Answer 27

The one who has more cost in reducing can pay the one who is less costly if its beneficial

Question 28

Tradable permits

Answer 28

Limits or caps the total permissible emissions

Stills allows market to develop

Benefits the market to reduce emissions at the least cost

No revenue to Big g