Unit 5 Flashcards
A(n) ___ is a contract that permits its owner to buy a specified quantity of stocks of a corporation at a future date, but at the price specified in the contract rather than the stock’s market price at the date of purchase.
Stock option
___ are people hired to run a complex enterprise on behalf of the ___, those whose benefit the enterprise is supposed to serve.
Agents; principals
___ refers to the tendency of insurance to discourage policyholders from protecting themselves from risk.
Moral hazard
___ refers to unproductive activity in the pursuit of economic profit - in other words, undeserved profit in excess of competitive earnings.
Rent seeking
A commodity is ___ if someone who does not pay for it can be kept from enjoying it.
Excludable
A commodity is ___ if it is used up when someone consumes it.
Depletable
A(n) ___ is a commodity characterized by both depletability and excludability.
Private good
A(n) ___ is a commodity or service whose benefits are not depleted by an additional user and from which it is generally difficult or impossible to exclude people, even if the people are unwilling to pay for the benefits.
Public good
The ___ is the share of an activity’s marginal benefit that is received by the persons who carry out the activity.
Marginal Private Benefit (MPB)
The ___ of the personal services is the tendency of the costs and prices of these services to rise persistently faster than those of the average output in the economy.
cost disease
The ___ of an activity is the sum of its marginal private benefit plus its incidental benefits (positive or negative) that are received by others, and for which those others do not pay.
Marginal Social Benefit (MSB)
The ___ is the share of an activity’s marginal cost that is paid for by the persons who carry out the activity.
Marginal Private Cost (MPC)
The ___ is a curve that shows the maximum quantities of outputs it is possible to produce with the available resource quantities and the current state of technological knowledge.
Production possibilities frontier
___ are government rules that tell organizations or individuals what processes or raw materials they may use or what products they are permitted to supply or purchase.
Direct controls
___ are taxes that polluters are required to pay. The amount they pay depends on what they emit and in what quantities.
Pollution charges (taxes on emissions)
___ are licenses issued by government specifying the maximum amount the license holder is allowed to emit. The licenses are restricted to permit a limited amount of emissions in total. Often, they must be purchased from the government or an a special market.
Emissions permits
___ occurs when the economic reactions to a tax cause prices and outputs in the economy to change, thereby shifting part of the burden of the tax onto others.
Tax shifting
The ___ is an allocation of the burden of the tax to specific individuals or groups.
Incidence of a tax
The ___ of a tax to an individual is the amount by which the burden of the tax exceeds the tax that is paid.
Excess burden
The ___ to an individual is the amount one would have to be given to be just as well off with the tax as without it.
Burden of a tax
The ___ holds that people who derive benefits from a service should pay the taxes that finance it.
Benefits Principle of Taxation
The ___ of taxation refers to the idea that people with greater ability to pay taxes should pay higher taxes.
Ability-to-pay Principle
___ refers to the notion that differently situated individuals should be taxed differently in a way that society deems to be fair.
Vertical equity
___ is the notion that equally situated individuals should be taxed equally.
Horizontal equity
___ refers to the system of grants from one level of government to the next.
Fiscal federalism
The ___ is levied on the assessed values of taxable properties, such as houses and office buildings.
Property tax
The ___ raises funds from the payroll tax and pays Social Security benefits to retirees.
Social Security System
A(n) ___ is a sum of money that may be subtracted before the taxpayer computes taxable income.
Tax deduction
A particular source of income is ___ if income from that source is not taxable.
Tax exempt
A(n) ___ is a special provision in the tax code that reduces taxation below normal rates (perhaps to zero) if certain conditions are met.
tax loophole
The ___ is a tax levied on the income of an individual or a family, typically with a progressive rate structure.
Personal income tax
___ are taxes levied on specific economic activities.
Indirect taxes
___ are taxes levied directly on people.
Direct taxes
The ___ is the fraction of each additional dollar of income that is paid in taxes.
Marginal tax rate
The ___ is the ratio of taxes to income
average tax rate
A(n) ___ is one in which the average tax rate falls as income rises.
regressive tax
A(n) ___ is one in which the average tax rate is the same at all income levels.
Proportional tax
A(n) ___ is one in which the average tax rate paid by an individual rises as income rises.
Progressive tax
A(n) ___ is a tax levied on the purchase of some specific good or service.
excise tax
The ___ is a tax levied on the profits of corporations, after all expenditures on wages, interest, rent, and purchases of other inputs are deducted.
Corporate income tax
The ___ is a tax levied on the earnings from work. In the United States, the tax starts at the first dollar earned and ends at an upper limit that increases each year.
payroll tax
The ___ of an input is the money value of the additional sales that a firm obtains by selling the marginal physical product of that input.
marginal revenu product (MRP)
The ___ of an input is the increase in output that results from a one-unit increase in the use of the input, holding the amounts of all other inputs constant.
marginal physical product (MPP)
___ is the act of starting new firms, introducing new products and technological innovations, and in general, taking the risks that are necessary to seek out business opportunities.
Entrepreneurship
___ are the broad categories - land, labor, capital, exhaustible natural resources, and entrepreneurship - into which we classify the economy’s different productive inputs.
Factors of production
___ is land that is just on the borderline of being used - that is, any land the use of which would be unprofitable if the farmer had to pay even a penny of rent.
Marginal land
___ is the portion of the earnings of a factor of production that exceeds the minimum amount necessary to induce that factor to be supplied.
Economic rent
___ is the payment for the use of funds employed in the production of capital; it is measured as the percent per year of the value of the funds tied up in the capital.
Interest
___ is the flow of resources into the production of new capital. It is the labor, steel, and other inputs devoted to the construction of factories, warehouses, railroads, and other pieces of capital during some period of time.
Investment
___ refers to an inventory (stock) of plant, equipment, and other (generally durable) productive resources held by a business firm, an individual, or some other organization.
Capital
The ___ for an input is the demand for the input by producers as determined by the demand for the final product that the input is used to produce.
derived demand
The process that has been invented for making the magnitudes of payments at different dates comparable to one another is called ___.
discounting, or computing the present value
___ is taking the next step, the act of putting the new idea into practical use.
Innovation
___ is the act of generating an idea for a new product or a new method for making an old product.
Invention
___ is the total revenue of a firm minus all of its costs, including the interest payments and opportunity costs of the capital it obtains from its investors.
Economic profit
