Vocabulary 3.0

Question 1

Moral Hazard

Answer 1

the risk of being dependent on the morality of others

Question 2

Adverse Selection

Answer 2

asymmetric information

Question 3

Free Rider

Answer 3

a person who benefit from a good without paying for it

Question 4

How can the optimum provision of a public good be found on a graph?

Answer 4

where the marginal cost intersects with the MSB (marginal social benefit) curve

Question 5

Tragedy of the Commons

Answer 5

unbalanced use of common resources

Question 6

Excludable goods

Answer 6

prevent some people from using it

Question 7

Rival goods

Answer 7

reduce people’s ability to use the same amount of the good

Question 8

Merit goods are…(education, health)

Answer 8

under-consumed if left to the market, thus, government intervenes

Question 9

Demerit goods are…(alcohol, tobacco)

Answer 9

over-consumed, thus governments intervene

Question 10

Internalising externalities

Answer 10

incentives so people take into account the external effects of their actions

Question 11

Coase Theorem

Answer 11

if private actors can bargain without cost over the allocation of resources, they can solve the problem of externalities on their own
(optimal efficient outcome)

Question 12

What is Deadweight Loss?

Answer 12

the loss producers make due to the imposed tax on the good
(reduction in total surplus)

Question 13

Elasticity of Supply Curves and Deadweight loss of taxes
- when supply is relatively elastic
- when the supply is relatively inelastic

Answer 13

deadweight loss of a tax is relatively small

deadweight loss of a tax is bigger

Question 14

Elasticity of Demand Curves and Deadweight loss of taxes
- when demand is relatively elastic
- when the demand is relatively inelastic

Answer 14

the deadweight loss of a tax is larger

the deadweight loss of a tax is smaller

Question 15

Pigovian Tax

Answer 15

tax enacted to tackle negative externalities

Question 16

Production isoquants

Answer 16

represent all possible combinations of factor inputs that can be used to produce a given level of output

Question 17

What do we use to analyse how taxes affect economic wellbeing?

Answer 17

we use tax revenue to assess how much the government benefits from the tax (TxQ)

Question 18

Adam Smith 4 Canons of Taxation
Equality

Answer 18

each person should pay taxes according to their ability to pay, so that the rich should pay more in taxes than the poor.

Question 19

Adam Smith 4 Canons of Taxation
Economic

Answer 19

any tax system must ensure that the cost of collecting and administering taxes is less than the amount collected.

Question 20

Adam Smith 4 Canons of Taxation
Certainty

Answer 20

taxpayers need to know what taxes they are liable for and be able to plan ahead on this basis.

Question 21

Adam Smith’s 4 Canons of Taxation
Convenience

Answer 21

paying taxes should be made as easy as possible, and tax systems should be designed to be as simple as possible to help maximize tax revenue.

Question 22

Lump Sum Tax

Answer 22

a tax that is the same amount for every person regardless of the earnings or actions that people take

Question 23

Proportional Tax (Flat)

Answer 23

both low and high-income taxpayers pay the same fraction of income

Question 24

Regressive Tax

Answer 24

high-income payers pay a smaller fraction of their income than low-income payers do

Question 25

Progressive Tax

Answer 25

high-income payers pay a higher fraction of their income than low-income payers do

Question 26

Tax burden

Answer 26

amount of tax that buyers & sellers share