Chapter 1 Flashcards

1
Q

What is Public Finance?

A

The study of the role of the government in the economy

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2
Q

What four questions does Public Finance attempt to answer?

A

1) When should the government intervene in the economy?
2) How might the government intervene?
3) What is the effect of those interventions on economic outcomes?
4) Why do governments choose to intervene in the way that they do?

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3
Q

What is a Market Failure?

A

Problem that causes the market economy to deliver an outcome that does not maximize efficiency.

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4
Q

Know the Measles story

A

ok

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5
Q

Redistribution

A

The shifting of resources from some groups in society to others

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6
Q

Price mechanism

A

Used by the government to address price failure. There are two methods through taxes or through subsidies

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7
Q

Price Mechanism through taxes

A

raise the price for private sales or purchases of goods that are overproduced

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8
Q

Price Mechanisms through subsidies

A

which lower the price for private sales or purchases of goods that are underproduced.

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9
Q

Three other ways government can intervene

A

1) Restrict or Mandate Private Sale or Purchase
2) Public Provision
3) Public Financing of Private Provision

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10
Q

How does “restrict or mandate private sales or purchases work?”

A

The government can directly restrict private sale or purchase of goods that are overproduced, or mandate private purchase of goods that are underproduced and force individuals to buy that good.

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11
Q

How does “Public Provision” work?

A

The government can provide the good directly, in order to potentially attain the level of consumption that maximizes social welfare.

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12
Q

How does “Public Financing of Private Provision” work?

A

Governments may want to influence the level of consumption but may not want to directly involve themselves in the provision of a good.

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13
Q

What are the direct effects of alternative interventions?

A

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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14
Q

What are the indirect effects of alternative interventions?

A

The effects of government interventions that arise only because individuals change their behavior in response to the interventions.

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15
Q

political economy

A

The theory of how the political process produces decisions that affect individuals and the economy.

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16
Q

centralization

A

that is, the extent to which spending is concentrated at higher (federal) levels or lower (state and local) levels.

17
Q

Examples of Regulating Economic and Social Activities

A

the FCC regulates communication, the FDA regulates the food and drug markets, the SEC regulates the securities industry