Term
Public Finance
and
The Four Q's of Public Finance |
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Definition
The study of the role of the government in the economy.
1- WHEN should the govt get involved?
2- HOW might the government get involved?
3- WHAT is the effect of those interventions on economic outcomes?
4- WHY do govt choose to intervene in the way that they do? |
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Term
Market Failure
Name Four Types |
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Definition
Problem that causes the market economy to deliver an outcome that does not maximize efficiency- 1st motivation for govt to get involved
a. Public goods
b. Monopoly
c. Asymmetric information
d. Externalities |
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Term
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Definition
Individual/firm making a decision does not receive the full benefit of the decision. Benefit to the individual or firm is less than the benefit to society.
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Term
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Definition
:an action of a product on consumers that imposes a negative side effect on a third party; it is "social cost".
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Term
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Definition
| The shifting of resources from some groups in society to another |
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Term
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Definition
| Raise the price for private sales or purchases of goods that are overproduced (a price mechanism) |
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Term
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Definition
| Lower the price for private sales or purchases of goods that are under produced(a price mechanism) |
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Term
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Definition
| A way for the govt to address the failures in the private market is to use the taxes or subsidies |
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Term
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Definition
| Quantity decreased, but income stayed the same, but the price has increased- it is as if the income is being lowered |
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Term
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Definition
| The idea that as prices rise (or incomes decrease) consumers will replace more expensive items with less costly alternatives. |
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Term
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Definition
normal goods are any goods for which demand increases when income increases and falls when income decreases but price remains constant
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Term
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Definition
inferior good is a good that decreases in demand when consumer income rises
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Term
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Definition
Substitutes: Used in place with the original good
Compliments: Used with the original good |
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Term
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Definition
| a curve showing the quantity of a good demanded by individuals at each price |
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Term
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Definition
| relationship between product price and quantity of product that a seller is willing and able to supply |
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Term
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Definition
| government-imposed limit on how high a price is charged for a product. |
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Term
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Definition
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Term
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Definition
representation of all bundles of goods that make an individual equally well off. Because these bundles have equal utility, an individual is indifferent as to which bundle he consumes.
1. Consumers prefer higher indifference curves. Individuals prefer to consume bundles that are located on indifference curves that are farther out from the origin because they represent bundles that have more of the goods.
2. Indifference curves are always downward sloping. Indifference curves cannot slope upward because that would imply that you ARE indifferent, which violates the more is better assumption. |
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Term
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Definition
| Constrained Utility Maximization: the process of maximizing the well being (utility) of an individual, subject to her resources (budget constraint) |
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Term
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Definition
| the study of the determinants of well-being, or welfare, in society |
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Term
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Definition
| the cost of any purchase is the next best alternative use of that money or the forgone opportunity |
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Term
| Microeconomics vs. Macroeconomics |
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Definition
| Micro economics pertains to individuals behavior while macroeconomics in the entire economy |
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Term
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Definition
| Lack of response to a change in the price of a good |
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Term
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Definition
| Elasticity of demand: the percentage change in the quantity demand of a good caused by each 1% change in the price of that good. |
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Term
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Definition
| the effects of government interventions that would be predicted if individuals did not change their behavior in response to the interventions |
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Term
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Definition
| the effects of government interventions that arise only because individuals change their behavior in response to the interventions. |
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Term
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Definition
| the theory of how the political process produces decisions that affect individuals in the economy |
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Term
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Definition
| goods for which the investment of any one individual benefits everyone in a larger group |
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Term
| Social Insurance Programs: |
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Definition
| government provision of insurance against adverse events to address failures in the private insurance market |
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Term
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Definition
| the set of tools designed to understand the mechanics behind economic decision making |
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Term
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Definition
| the set of tools designed to analyze data and answer questions raised by theoretical analysis |
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Term
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Definition
| mathematical function representing an individual’s set of preferences- which translates her well-being from different consumption bundles into units that can be compared in order to determine choice |
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Term
| Constrained Utility Maximization: |
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Definition
| the process of maximizing the well being (utility) of an individual, subject to her resources (budget constraint) |
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Term
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Definition
| marginal utility of a good or service is the gain (or loss) from an increase (or decrease) in the consumption of that good or service. diminishing marginal utility, meaning that the first unit of consumption of a good or service yields more utility than the second and subsequent units, with a continuing reduction for greater amounts. |
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Term
| Marginal rate of substitution (MRS): |
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Definition
| Marginal Rate of Substitution: the rate at which you would buy a substitute product and still be just as satisfied with the original product rate at which the consumer will trade the good on the vertical axis for the good on the horizontal access |
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Term
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Definition
| the effects of government interventions that would be predicted if individuals did not change their behavior in response to the interventions |
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Term
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Definition
| he effects of government interventions that arise only because individuals change their behavior in response to the interventions. |
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Term
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Definition
FICA Tax 6.2% from you and from (employer
Market Failure?)
40 quarters of work
62+ for minimum benefits |
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Term
Quantity Demanded
vs.
Demand: |
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Definition
Quantity Demanded: A change in price and change in demand
Demand: Constant price would more people want it |
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Term
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Definition
the size of the pie, represents the net gains to society from all trades that are made in a particular market, consists of two components
i. Consumer Surplus: the benefit the consumers derive from consuming a good, above and beyond the price they paid for the good
ii. Producer Surplus: the benefit that producers derive from selling a good, above and beyond the cost of producing that good
iii. Total Social Surplus: the sum of consumer surplus and producer surplus |
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Term
| First Fundamental Theorem of Welfare Economics: |
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Definition
| the competitive equilibrium where supply equals demand, maximizes social efficiency. |
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Term
| Second Fundamental Theorem of Welfare Economics: |
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Definition
| society can attain any efficient outcome by suitably redistributing resources among individuals and then allowing them to freely trade |
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Term
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Definition
| externality (opposed to production externality like smoking) |
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Term
| Potential Social Security |
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Definition
-Raise taxes
-Extend the Base of Taxable wages (above the first 102,000 dollars)
-Raise the retirement age
-Lower Benefits
-Reduce benefits for higher income groups
-Invest trust funds in stocks |
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Term
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Definition
Purchased by the individual, usually through employer. (Most popular form of plan)
-Risk pooling and the tax subsidy are the major incentives for businesses to provide insurance |
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Term
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Definition
| (Individuals face the full cost of care up to a limit. A $100 deductible means the individual would pay the first $100 of costs) |
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Term
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Definition
| Fixed payment for a medical visit or prescription |
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Term
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Definition
| Patient pays a percentage as opposed to fixed amount (copayment). |
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Term
Public Health Insurance
Medicare |
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Definition
Medicare
• Coverage for the elderly and disabled
• Funded through FICA taxes
•Eligibility after ten years of work, 65+ |
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Term
| Public Health Insurance Medicaid |
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Definition
•Coverage for the poor
•Means tested |
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Term
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Definition
• Statistical way of measuring risk in a given pool of people. Used to set rates.
•Goal is to create large pools with predictable medical risks. |
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Term
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Definition
| Cost shifting- someone has to pay for their care |
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