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HSCI 206 > Unit 1 > Flashcards

Unit 1 Flashcards

1
Q

what is normative economics

A

economic analysis that assesses the goodness or desirability of the policy outcomes

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2
Q

why is the way economists conduct normative economics controversial

A

the ethical assumptions used to judge distrutbion of things like cars can be quite different than the ethical assumptions used to judge allocations of health care

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3
Q

what are the three concepts of efficiency

A

technical efficiency, cost-effectiveness efficiency, and allocative efficiency

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4
Q

what are the two types of equity analysis

A

distributional equity and procedural equity

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5
Q

what is opportunity cost

A

the opportunity cost of using a resource for one purpose is the benefits forgone from the highest valued alternative use

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6
Q

what does opportunity cost emphasize

A

the true social cost of an action or a policy is not associated with financial expenditures

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7
Q

what is technical efficiency

A

does not waste resources when producing a good

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8
Q

what is cost effectiveness efficiency

A

produce each good using the lowest cost mix of resources

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9
Q

what is allocative efficiency

A

calls to society to produce the goods and services that people value the most

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10
Q

what is efficiency

A

in essence is about getting as much as possible from scarce resources

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11
Q

what does the amount of output produced depend on

A

technology available and the quantity and quality of inputs

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12
Q

what is the production function

A

the relationship between inputs and outputs

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13
Q

what is indicated by the production function

A

the maximum amount of output that can be produced from a given set of inputs

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14
Q

what is maximized by technical efficiency

A

the output for the given inputs

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15
Q

what question is asked to assess if a production method is technically efficient

A

is it possible to get more output with the same inputs

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16
Q

what does cost effectiveness require

A

that among all technically efficient methods, the lowest-cost production method is chosen

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17
Q

what is identified by the production possibilities factor

A

the combinations of health care and houses that the society can produce if it uses its resources in a technically and cost effectively efficient manner

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18
Q

what do the points on the PPF represent

A

technically efficient production

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19
Q

what do the points inside the curve of PPF represent

A

technically inefficient production

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20
Q

what does allocative efficiency require

A

that society produce and distribute goods and services in accord with the value that individuals place on those goods and services

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21
Q

what is utility

A

the subjective satisfaction an individual derives from consuming a good or undertaking an activity

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22
Q

what is the level of utility a measure of

A

the benefit derived from a particular resource allocation

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23
Q

what does the Pareto criterion declare

A

allocation to be allocatively efficient

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24
Q

how does the Pareto criterion declare allocation to be allocatively efficient

A

if it is impossible to reallocate resources in a way that makes at least one person better off without making someone else worse off

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25
Q

what do all points on the grand utility possibilities frontier represent

A

possibilities that are allocatively efficient

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26
Q

what is the goal of the potential Pareto criterion

A

it seeks to allocate resources to maximize net benefit to society

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27
Q

how is net benefit defined in the potential Pareto criterion

A

net benefit is defined as total benefits minus total costs

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28
Q

what is the concept of allocative efficiency

A

social benefit

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29
Q

what is the objective of technical efficiency and cost effectiveness efficiency

A

the production of a good

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30
Q

what does maximizing behaviour depend on

A

marginal analysis

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31
Q

what does marginal analysis do

A

it identifies the optimal level of a good or activity

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32
Q

how does marginal analysis identify optimal level of a good

A

by continually asking what happens if we do something just a little bit more or just a little bit less

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33
Q

what is the use of efficency normatively

A

to judge the desirability of an allocation of resources

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34
Q

what is the concern of equity

A

fairness

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35
Q

what is assessed by equity analysis

A

whether a particular allocation of resource is fair

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36
Q

what are the two types of equity

A

distributional equity and procedural equity

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36
Q

what does distributional equity define

A

the good of concern, what constitutes a fair distribution of the good, and the amount of the good each member of society has with the characteristics of each individual

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37
Q

what is asked by procedural equity

A

if the process is fair

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38
Q

what occurs from procedural equity

A

it shifts the focus from the actual distribution of a good to the process by which a good is allocated

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39
Q

what does assessing distributional equity require

A

an agreement regarding the thing whose distribution is of equity concern, the characteristics of individuals judged relevant to assessing a fair distribution of the good, and a definition of how the distrubition of that characteristic among individual corresponds to a fair distribution of the good among individuals

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40
Q

what is the good of concern for distributional equity in the healthcare sector

A

health care itself, access to healthcare, health, or the burden of paying for health care

41
Q

what is the characteristic relevant to a fair distribution

A

the feature that determines how much of the good a person should get under a fair distribution

42
Q

what are the two criteria used to assess distribution

A

horizontal equity and vertical equity

43
Q

what is required by horizontal equity

A

that individuals who are equal with respect to their equity relevant characteristics receive equal amounts of the good

44
Q

what does horizontal equity demand

A

that two individuals with equal ability to pay/contribute equally to finance health care

45
Q

what is required by vertical equity

A

that those who are unequal with respect to their equity relevant characteristic receive appropriately unequal amounts of the good

46
Q

what is the central challenge of vertical equity

A

how to define how much differently unequals should be treated

47
Q

what does procedural equity concern

A

the fairness of the process by which resources are allocated

48
Q

when is procedural equity used

A

in situations where the analysis of distributional equity is not possible

49
Q

describe when distributional equity is not possible

A

when we cannot observe one or both of the good and the equity relevant characteristic of individuals, making it impossible to compare how the two distributions correspond

50
Q

what is required to achieve greater efficiency

A

society may have to sacrifice some equity

51
Q

what does economics capture in regards to social welfare function

A

represents society’s preferences and attitudes toward the amount and distribution of welfare in society

52
Q

what is the two primary criteria for assessing allocative efficiency

A

the Pareto criterion and the potential Pareto criterion

53
Q

does efficiency and equity conflict with one another?

A

they can, but do not necessarily conflict

54
Q

what are the three kinds of conditions are necessary for market allocation to be efficient

A

conditions in the broader environment in which a market operates, ethical principles consistent with the judgement that a person’s willingness to pay represents the social value of a good or service, technical conditions within the market itself

55
Q

when do markets function well

A

only when surrounded by external institutions that support market exchange

56
Q

what do markets require

A

a well functioning legal system that can define, adjudicate, and enforce property rights

57
Q

how do markets allocate resources

A

on the basis of willingness to pay

58
Q

what does a persons willingness to pay depend on

A

their ability to pay, which in turn depends on their income or wealth

59
Q

what are the three basic conditions required for a market allocation t be efficient

A

an absence of market power on both the demand and supply side, adequate information for both purchasers and producers to make good decisions, and absence of externalities

60
Q

what does market power imply

A

an ability to influence the market price

61
Q

what is an monopoly

A

a market that only has a single producer

62
Q

what is government regulation of market power do

A

it inhibits market competition

63
Q

what is asymmetry of information

A

a source of market power

64
Q

why is asymmetry of information a source of market power

A

because sellers have considerable scope to exploit their informational advantage to influence the demand for their own services for their own economic gain

65
Q

how do externalities affect markets

A

they cause markets to allocate resources inefficiently

66
Q

when does market failure occur

A

when one or more of the necessary conditions is violated, an unregulated market fails to generate an efficient allocation of resources

67
Q

what logic does economic policy analysis rest on

A

a principal economic goal is the efficient allocation of society’s resources

68
Q

what is provided by the economic model of consumer choice and demand

A

formal framework which to analyze how these and other factors affect demand for goods and services

69
Q

what does the economic model of consumer choice and demand emphasize

A

what people care about, the goal they are trying to achieve through their choices, the constraints they face when making a choice

70
Q

what is the consumer’s choice problem

A

given the market prices for goods and a person’s preferences and income, how should a person allocate their income so as to maximize utility

71
Q

what is diminishing marginal utility

A

consuming more of a good increases utility, but at a diminishing rate

72
Q

what is the income effect

A

the higher income causes the person to increase consumption

73
Q

why is the demand curve negatively sloped

A

because of diminishing marginal utility

74
Q

explain why the demand curve is negatively sloped

A

the maximum amount that a person is willing to pay decreases as quantity consumed increases; the quantity demanded increases as price falls

75
Q

what is an elasticity measure

A

the ratio of the percentage change in the determined variable to the percentage change in the determining variable

76
Q

what is own price elasticity measure do

A

measures the responsiveness of the quantity demanded for a good to changes in its own price

77
Q

what does income elasticity of demand measure

A

measures the responsiveness of the demand for a good to changes in income

78
Q

what are the characteristics of inelasticity

A

price insensitive, and occurs when the absolute value is less than 1

79
Q

when does unitary elasticity occur

A

when the absolute value of price elasticity equals 1

80
Q

what does elasticity occur

A

when the absolute value of the price-elasticity is greater than 1

81
Q

what is referred to as inferior goods

A

goods whose quantity demanded falls as income rises

82
Q

what is referred to as normal goods

A

goods whose quantity demand grows as income rises

83
Q

what does the elasticity of demand for a good depend on

A

the time period under consideration

84
Q

what is market demand

A

the sum of the individual demands of those participating in the market

85
Q

what is producer’s total revenue equal to

A

the price of the good multiplied by the number of units the producer sells

86
Q

what is price determined by

A

the market

87
Q

what are production cost determined by

A

the prices of inputs

88
Q

what are diminishing marginal returns

A

when additional units of one input are added while holding constant the amounts of all other inputs, beyond a point the marginal output of each additional unit of the input falls

89
Q

what is a market comprised of

A

demand and supply

90
Q

what is a market equilibrium

A

once the market reaches this price-quantity combination, there will not be tendency for price or output to change unless one of the determinants of demand or supply changes

91
Q

if there are no externalities in consumption, what does marginal private benefit equal

A

marginal social benefit

92
Q

what is the supply curve also known as

A

the producer’s marginal cost curve

93
Q

what is the net benefit to society defined as

A

the total benefit generated by the consumption minus the total social cost of its production

94
Q

what is the consumer’s surplus

A

the area above the equilibrium price line and below the demand curve which is the measure of the benefit that accrues to consumers

95
Q

what is the producer’s surplus

A

the area below the equilibrium price line but above the supply curve

96
Q

what is monopolistic competition

A

a market with many producers, each selling a slightly differentiated version of a good or service

97
Q

what is oligopolistic competition

A

a market with a small number of large producers, each of which holds a substantial proportion of the market

98
Q

when does market failure occur

A

when one or more of the conditions set out in equation do not hold

99
Q

what is the market equation

A

MSB = MPB = P* = MPC = MSC

100
Q

what creates welfare losses and inefficiencies

A

policies that distort prices

HSCI 206 (5 decks)

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