Unit 1 Flashcards
What is the science of scarcity?
economics, achieving maximum value from deployment of scarce/limited resources… way of thinking about choice… broad concept
What is Opportunity cost
The value of the consequences forgone by choosing to deploy resources in one way rather and in best alternative use “sacrifice” “forgone benefit”
How does PPF represent scarcity?
Limited amount of resources, can’t obtain a perfect output (ex:only 24 hours in a day)
How does PPF represent choice?
shows combinations of choices we can make (ex: study time and non-study time that are attainable within a single day)
What is the cost benefit principle?
Take an action only if the extra benefits exceed the extra cost
What are the three types of efficiency?
technical, cost effectiveness, allocative
What is technical efficiency?
Producing maximum possible amount of output from the inputs used, given the chosen production method
What is cost effective efficiency?
producing a good using least cost method of production from among all technically efficient methods
What is allocative efficiency?
Using limited resources to produce and distribute goods and services in accord with the value individuals place on those goods and services
What is consumer sovereignty?
People are best judges of their own welfare, consumer preferences determine supply side action
What is the Pareto Criterion?
Criterion to test allocative efficiency, it is impossible to reallocate resources in a way that makes at least one person better off without making someone else worse off (all points on GUPF are allocatively efficient)
What is Potential Pareto Criterion?
If the gains from reallocation are sufficiently large that the winners could (in theory) compensate the losers and still be better off, policy is deemed allocatively efficient (seeks to maximize net benefit)
What is Marginal benefit?
The increase in benefit as a result of increasing production (or consumption) by one additional unit
What is diminishing marginal utility?
consuming more of a good increases utility but at a diminishing rate
What is marginal cost?
cost of one more unit of output/consumption; the increase in cost as a result of increasing production/consumption by one unit
What is marginal benefit?
Benefit from one more unit of output/consumption; the increase in benefit as a result of increasing production/consumption by one unit
What shifts demand?
- consumer preferences
- prices of related goods (complements/substitutes)
- income
- number of potential buyers
- expectations of price changes
What is the shape of demand curve?
Downward sloping, depicts relationship between price of a good and quantity of good demanded, other determinants constant
What are complement goods?
Goods that are normally consumed together so that an increase in the price of one causes a decrease in the demand for the other, and a decrease in the price of one causes an increase in demand for another
What are substitute goods?
good that can satisfy a similar want so that an increase in price of one increases demand for the other and a decrease in the price of one causes a decrease in the demand for the other
What are normal goods?
a good which quantity demanded increases as income rises, positive income elasticity of demand
What are inferior goods?
a good for which the quantity demanded decreases as income rises, a good with a negative income elasticity of demand
What affects supply?
- price of other goods
- number of sellers
- input prices
- technology
- expectations of price changes
What is Hurley’s framework of well functioning markets?
- conditions in the broader environment
- acceptance of willingness to pay
- technical conditions within the market
i) an absence of market power
ii)symmetry of information
iii) absence of externalities
What is market power?
The ability to influence market price (supply and demand)
What is symmetry of information?
Ability to make good decisions (supply and demand)
What are externalities?
a cost or benefit arising from any activity which doesn’t accrue to the person or organization carrying on the activity (positive of negative)
What are responses to market failure?
government intervention
- regulation
- price subsidy
- tax policy
What is elasticity?
Measures the response of demand and/or supply to changes in variables that determine them (price and income)
What can elasticities do?
Help set policy
What is the equation for price elasticity demand?
(% change in demand) /( % change in price)
What is perfect inelasticity and what does it look like?
PED of zero. No matter how the price changes, demand is the same (vertical line)
What is perfectly elastic demand and what does it look like?
demand is entirely dependent on price of the product, increase price by a little, demand will disappear, horizontal
What are 4 Aspects of the health care system?
- governance
- financing
- delivery
- regulation
What is efficiency?
getting the most of available resources, generate as much benefit as possible eight limited resources
What is equity?
use resources in a way that distributes costs and benefits fairly Amon members of society
What is a market system?
Institutional setting where individuals and organizations voluntarily exchange goods and services at prices determined by market forces
What is positive economics?
describes and predicts accurately economic phenomenon, attempts to determine what is or what will be (policies and program outcomes)
What is normative economics?
identify what policies, actions, or outcomes are desirable from an economic perspective, what society should do.
What are resources?
raw materials, natural resources, physical capital, human labour, intellectual capital
What is Productions Possibilities Frontier
Graph that represents maximum combinations of two goods that society can produce given its available resources and production technologies
What is utility
Subjective satisfaction an individual derives from consuming a good or activity
What are the two types of equity
- Distributional
- Procedural
What is horizontal equity
Distributional equity whereby those who are equal with respect to an equity relevant characteristic (income, need) are treated equally
What is vertical equity
Distributional equity whereby those who are unequal with respect to an equity relevant characteristics (income, need) are treated in appropriate unequal manner
What is a monopoly, monopsony
monopoly-single producer of good or service
monopsony-single purchaser of good or service
What is market failure?
a situation which an unregulated market generates inefficient allocation of resources
What are diminishing marginal returns
Successive incremental additions of one input are associated with successively smaller increases in total output, holding the amounts of other inputs constant
What is market equilibrium?
the price-quantity combination in a market at which there is no tendency for price or output to change unless one of the determinants of demand or supply change
What is consumer sovereignty
the assumption that consumers are the best judges of their own welfare, and that their decisions should determine the amount and distribution of goods in society
what is perfect competition, monopolistic competition, and oligopolistic competition?
Perfect competition = many buyers, many sellers of identical product
Monopolistic competition - market with imperfect competition with many producers selling slightly differentiated products, this product differentiation gives each producer a small amount of market power
Oligopolistic competition - market with imperfect competition characterized by small number of producers, each of which constitutes a large share of the market
What is Grossman’s model for desiring health
- provides direct benefits and allows us to undertake activities that provide utility
- Allows us to work more days, earn more money, increase levels of consumption
- enables us to live longer, so we can enjoy activities and consumption for longer
**Derived demand
What is important within a health capital model
people’s time preference is important in considering utility
What is the Use of Grossman’s model
study effect of factors (income, age, education) on production of health
What is healthcare? Why does it matter?
i) goods and services with a primary purpose to improve health
ii) goods and services provided by health care professionals
coverage decisions and regulatory reasons
What are the characteristics of health care in Hurley?
- demand for health care (health production function)
- externalities (selfish or caring)
- information asymmetry
- uncertainty
- vulnerability to the integrity of a person
What is the health capital model?
economic model of the individual level demand for and production of health over a lifetime, based on the assumption that health can be analyzed as a durable capital good
What is derived demand for health care
the demand for health care derives from the demand for health
What is the depreciation rate of health capital?
amount by which health diminishes each period if an individual does not invest in maintaining health
What is investment demand for health?
An individual’s demand for health capital that derives from the monetary benefits(due to increased time available for work) associated with improved health
