Final Exam Flashcards
KISS, the Grandma Bessie Test
Can you explain your policy analysis/problem in a 90 sec pitch?
Deadweight Loss
Loss of economic efficiency when can occur when market equilibrium is not achieved.
Cost effectiveness analysis
economic analysis that compares relative cost to outcomes/effects of different courses of action. Different from cost-benefit analysis.
Rent-seeking behavior
Manipulating policy/economic condition to increase profit to excess.
Tax incidence
Division of the tax burden between consumers and producers.
Consumer surplus
Difference between what consumers are willing and able to buy/pay and what the quantity they can buy and what they actually pay.
X-inefficiency
Difference between efficient business behavior theorized by econ theory and the observed, actual practice in a low-competition environment.
Paradox of voting
Often, the cost of voting for a rational, self-interested is higher than the expected benefits from voting.
Client politics
When organized minority interest groups benefit at the expense of the public
Gini coefficient
A measure of wealth inequality in a country. Shows the distribution of wealth of population.
Conditions for efficient economy
- Efficiency of production
- Efficiency of consumption
- Efficiency of output.
* Everyone has the same info, price reflects actual costs.
Significance of diffuse interests
Many people can hold the same interest, but it is one of many interests that people care about. It is thus hard to organize people around one such interest.
The principal-agent problem
When an “agent” can act on behalf of or make decisions for the “principal” who is affected by these actions. Problem when agent acts in its own self-interest which may be contrary to that of the principal. (Employer-employee)
Dealing with uncertainty in cost-benefit analysis
- Conduct a break-even estimate
- Observe trends
- Make magnitude estimates of the projected outcome
Twenty Dollar Bill test
Why hasn’t this policy been implemented yet if it’s such a good idea?
Resource withdrawal
If there is a change in the political climate, resources available to policy may change.
Capture
Policy can be made but the industry can hold all the cards meaning your hands are tied.
The Bluff Principle
Bottom Line Up Front: draw your central conclusion first then elaborate
Wimpy’s principle
A dollar tomorrow is worth less than a dollar today.
Discount rate, or the rate of time preference
Different between the value of a dollar in one period of time and the following period.
Corollary to Wimpy’s
A dollar in the distant future has very little value even though it will be “worth” a dollar when you get it.