FINAL EXAM TERMS

Question 1

private costs

Answer 1

costs that fall directly on an economic decision maker

Question 2

external costs

Answer 2

costs imposed without compensation on someone other than the person who caused them; negative externality

Question 3

social cost

Answer 3

the entire cost of a decision, including both private costs and any external costs

Question 4

private benefits

Answer 4

benefits that accrue directly to the decision maker

Question 5

external benefits

Answer 5

benefits that accrue without compensation to someone other than the person who caused it; positive externality

Question 6

social benefit

Answer 6

the entire benefits of a decision, including both private benefits and external benefits

Question 7

externality

Answer 7

a cost or benefit imposed without compensation on someone other than the person who caused it

Question 8

network externality

Answer 8

the effect that an additional user of a good or participant in an activity has on the value of that good or activity for others

Question 9

production externality

Answer 9

an externality that occurs when a good or service is being produced

Question 10

consumption externality

Answer 10

an externality that occurs when a good or service is being consumed

Question 11

coase theorem

Answer 11

the idea that even in the presence of an externality, individuals can reach an efficient equilibrium through private trades, assuming zero transaction costs

Question 12

pigovian tax

Answer 12

a tax meant to counterbalance a negative externality

Question 13

tradable allowance

Answer 13

a production or consumption quota that can be bought and sold

Question 14

excludable

Answer 14

a characteristic of a good or service that allows owners to prevent its use by people who have not paid for it

Question 15

rival in consumption

Answer 15

the characteristic of a good for which one person’s consumption prevents or decreases others’ ability to consume it

Question 16

private goods

Answer 16

a good that is both excludable and rival

Question 17

public goods

Answer 17

a good that is neither excludable nor rival

Question 18

common resources

Answer 18

a good that is not excludable but is rival

Question 19

artificially scarce goods

Answer 19

a good that is excludable but not rival

Question 20

free-rider problem

Answer 20

a problem that occurs when the non-excludability of a public good leads to undersupply

Question 21

solutions to free-rider problem

Answer 21

change social norms, government provision, assigning property rights

Question 22

tragedy of the commons

Answer 22

the depletion of a common resource due to individually rational but collectively inefficient overconsumption

Question 23

solutions to the tragedy of the commons

Answer 23

change social norms, government regulation: bans/quotas, property rights: privatization, property rights: tradable allowances

Question 24

factors of production

Answer 24

the ingredients that go into making a good or service

Question 25

capital

Answer 25

manufactured goods that are used to produce new goods

Question 26

value of the marginal product

Answer 26

the increase in revenue generated by the last unit of an input; calculated as the output generated by an input (marginal product) times the unit price of the output

Question 27

human capital

Answer 27

the set of skills, knowledge, experience, and talent that determine the productivity of workers

Question 28

rental price

Answer 28

the price paid to use a factor of production for a certain period or task

Question 29

purchase price

Answer 29

the price paid to gain permanent ownership of a factor of production

Question 30

economic rent

Answer 30

the gains that workers and owners of capital receive from supplying their labor or machinery in factor markets

Question 31

efficiency wage

Answer 31

a wage that is deliberately set above the market rate to increase worker productivity

Question 32

monopsony

Answer 32

a market in which there is only one buyer but many sellers

Question 33

production possibilities frontier

Answer 33

a line or curve that shows all the possible combinations of two outputs that can be produced using all available resources

Question 34

efficient points

Answer 34

combinations of production possibilities that squeeze the most output possible from all available resources

Question 35

absolute advantage

Answer 35

the ability to produce more of a good or service than others can with a given amount of resources

Question 36

comparative advantage

Answer 36

the ability to produce a good or service at a lower opportunity cost than others

Question 37

gains from trade

Answer 37

the improvement in outcomes that occurs when producers specialize and exchange goods and services

Question 38

lump-sum tax

Answer 38

a tax that charges the same amount to each taxpayer, regardless of their economic behavior or circumstances

Question 39

administrative burden

Answer 39

the logistical costs associated with implementing a tax

Question 40

proportional/flat tax

Answer 40

a tax that takes the same percentage of income from all taxpayers

Question 41

progressive tax

Answer 41

a tax that charges low-income people a smaller percentage of their income than high-income people

Question 42

regressive tax

Answer 42

a tax that charges low-income people a larger percentage of their income than it charges high-income people

Question 43

income tax

Answer 43

a tax charged on the earnings of individuals and corporations

Question 44

marginal tax rate

Answer 44

the tax rate charged on the last dollar a taxpayer earns

Question 45

capital gains tax

Answer 45

a tax on income earned by buying investments and selling them at a higher price

Question 46

payroll tax

Answer 46

a tax on the wages paid to an employee

Question 47

sales tax

Answer 47

a tax that is charged on the value of a good or service being purchased

Question 48

excise taxes

Answer 48

a sales tax on a specific good or service

Question 49

property tax

Answer 49

a tax on the estimated value of a home or other property

Question 50

discretionary spending

Answer 50

public expenditures that have to be approved each year

Question 51

mandatory spending

Answer 51

public expenditure that “entitles” people to benefits by virtue of age, income, or some other factor

Question 52

budget deficit

Answer 52

an amount of money a government spends beyond the revenue it brings in

Question 53

budget surplus

Answer 53

an amount of revenue a government brings in beyond what it spends