Vocabulary: Unit Seven

Question 1

Externality

Answer 1

When a decision-maker takes an action that imposes on a third party a cost or benefit that the decision-make didn’t take into account

Question 2

Positive externality

Answer 2

A third-party cost

Question 3

Negative externality

Answer 3

A third-party cost

Question 4

Command and control legislation

Answer 4

The government limits an activity and fines firm’s if they exceed the limit

Question 5

Specific tax/subsidy

Answer 5

Taxes on costs, subsidies on benefits

Question 6

Tradable permits

Answer 6

The government provides permits that firm’s can sell or trade between themselves

Question 7

Private good

Answer 7

A good that private suppliers produce and that consumers are willing and able to pay for; exchanged voluntarily

Question 8

Public good

Answer 8

Not provided in private markets because there is no way to prevent those who don’t pay for the goods from using them

Question 9

Free-riders

Answer 9

People who enjoy the benefits of something without paying the costs

Question 10

Non-exclusionary

Answer 10

A producer can’t prevent anyone from using the good

Question 11

Non-rival

Answer 11

The use of the good by one person doesn’t diminish the amount available for anyone else

Question 12

Market failure

Answer 12

A socially undesirable outcome resulting from the unrestrained operation of markets; cost o society is greater than the benefit to society

Question 13

Common property problem

Answer 13

When property rights aren’t clearly defined, the economic incentive to care for a good or resource decreases

Question 14

Income distribution

Answer 14

Tells how much of a nation’s total income is earned by different segments of the population

Question 15

Median income

Answer 15

The income of the household in the middle when all households are range from the lowest to highest incomes

Question 16

Lorenz curve of income distribution

Answer 16

Common way to measure income inequity

Question 17

Poverty

Answer 17

A household’s income isn’t enough to to cover basic food and and housing expenses

Question 18

Government transfers

Answer 18

Entitlements; transfers of money or services to people who qualify based on the criteria of the program

Question 19

Proportional

Answer 19

The tax rate is the same for all incomes

Question 20

Progressive

Answer 20

The tax rate increases as income increases

Question 21

Regressive

Answer 21

The tax rate decreases as income increases

Question 22

Tax incidence

Answer 22

Who bears the burden of the tax; depends on the price elasticity of demand and supply