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COMM 394 > COMM 394 Midterm > Flashcards

COMM 394 Midterm Flashcards

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1
Q

What is the role of the government in society and businesses?

A

To provide a criminal justice system, enforce the rule of law, set macroeconomic policy, provide goods and services, and regulate various sectors.

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2
Q

What does the Rule of Law do?

A

Disincentivizes harmful behavior and protects property rights, enabling enforcement of contracts.

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3
Q

What are some goods and services provided by the government?

A
  • National Defence
  • Education
  • Healthcare
  • Infrastructure
  • Utilities
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4
Q

What is the purpose of taxes?

A

To fund government policies and reduce unwanted behavior.

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5
Q

What are sin taxes?

A

Taxes imposed on goods like alcohol and tobacco to discourage their consumption.

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6
Q

Define ‘Economic Rational Agent’.

A

An agent that selfishly maximizes their own anticipated utility.

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7
Q

What is ‘Surplus’ in economics?

A

The difference between the utility of having a good and the utility of the transaction price.

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8
Q

What is ‘Social Welfare’?

A

The sum of everyone’s utility, weighted equally.

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9
Q

True or False: Free market transactions are always voluntary.

A

True

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10
Q

What is ‘Pareto Inefficiency’?

A

Occurs when a rational agent fails to maximize social welfare in a free market due to factors like imperfect competition or information problems.

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11
Q

How can social welfare increase?

A

Through redistribution, as marginal utility of wealth decreases with increased wealth.

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12
Q

What is an institution in an economic context?

A

A governing body that creates and enforces rules for transactions and wealth redistribution.

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13
Q

What is the ‘Marginalist Principle’?

A

Policies should be carried out as long as overall benefits exceed costs, with equal marginal benefits across resource uses.

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14
Q

What is ‘Opportunity Cost’?

A

The utility gained by doing the next best alternative, or the foregone benefit of that alternative.

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15
Q

What is ‘Willingness to Pay’?

A

The total utility an agent derives from a good, expressed in dollars.

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16
Q

What is the ‘Peltzman Effect’?

A

When people adjust their behavior to a regulation in ways that counteract the regulation’s intended effects.

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17
Q

Define ‘X-Inefficiency’.

A

Inefficiency in management efficiency where firms fail to minimize costs due to various reasons.

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18
Q

What are the two kinds of efficiency recognized by economists?

A
  • Management Efficiency/Production Efficiency
  • Pareto Efficiency/Allocational Efficiency
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19
Q

What is the First Welfare Theorem?

A

Under perfect competition, markets achieve Pareto Efficiency.

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20
Q

What is the difference between opportunity costs and accounting costs?

A

Opportunity costs exclude sunk costs and may not be expressed in dollars.

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21
Q

Fill in the blank: The _____ principle states that the last dollar spent on a policy should equal the cost of raising that dollar.

A

Marginalist

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22
Q

What is an example of an unintended consequence in economic policy?

A

Rent caps can disincentivize developers from building more properties.

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23
Q

What is the relationship between intrinsic motivations and financial incentives?

A

Financial incentives can crowd out intrinsic motivations for altruistic actions.

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24
Q

What is ‘Transfer Seeking’?

A

Any activity that tries to increase one’s share of wealth without creating new wealth.

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25
What is X-inefficiency?
Inefficiency in management efficiency, where firms do not achieve optimal productivity ## Footnote Coined by economist Leibenstein, it highlights cases where management failure occurs
26
What is Pareto efficiency?
A situation where it is impossible to reallocate resources to make at least one person better off without making anyone else worse off ## Footnote In a Pareto efficient situation, there is no dead-weight loss
27
Define Pareto Improvement
At least one person is made better off while no one is made worse off
28
What is a Deadweight Loss (DWL)?
A measure of the deviation from Pareto efficiency, indicating missed mutually beneficial transactions
29
What does the Second Welfare Theorem state?
Social welfare can be maximized through redistribution of endowments
30
What is Game Theory?
A study of how players make decisions in strategic situations, focusing on actions and payoffs
31
What is Nash Equilibrium?
A situation where each player's strategy is optimal given the strategies of other players
32
What is the Prisoner’s Dilemma?
A scenario where two individuals might not cooperate even if it is in their best interest to do so
33
What are some solutions to the Prisoner’s Dilemma?
* Tit-for-tat strategy * Grim strategy * Institutions enforcing rules * Outside intervention * Signalling * Trust or social conventions
34
What is Imperfect Competition?
Market structures where the assumptions of perfect competition break down, leading to market power
35
Define Monopoly.
A market structure with a single seller
36
What is a Natural Monopoly?
A situation where one firm can produce at a lower cost than competitors
37
What is Monopsony?
A market with a single buyer who exerts market power
38
What are the defining characteristics of Public Goods?
* Non-rival * Non-excludable
39
What are the four types of goods?
* Private Good * Club Good * Commons Good * Public Good
40
Private Good
Excludable, Rival
41
Club Good
Excludable, Non-rival
42
Commons Good
Non-excludable, Rival
43
Public Good
Non-excludable, Non-rival
44
What are Externalities?
Activity by-products generating non-priced costs or benefits affecting third parties
45
What is Adverse Selection?
Occurs when one party in a transaction has more information than the other, leading to poor outcomes
46
What is Moral Hazard?
When an agent's behavior changes because they do not bear all costs of their actions
47
What is the impact of market failure on efficiency?
Leads to incorrect quantities produced, resulting in inefficiencies in output and employment
48
Fill in the blank: A _______ occurs when the quality of a product is unknown, leading to bad products being over-provided.
market failure
49
What is distributive fairness?
The final allocation of benefits across individuals is just or morally acceptable. ## Footnote Distributive fairness focuses on the outcomes of resource distribution rather than the process of distribution itself.
50
What is procedural fairness?
The rules of the game are just or morally defensible, regardless of the final allocation that results. ## Footnote Procedural fairness emphasizes the fairness of the processes used to make decisions.
51
What does non-coercion imply in the context of fairness?
No individual is forced to take an action. ## Footnote This principle is essential for ensuring that individuals have the freedom to make choices.
52
What is the significance of equality of opportunity in fairness?
Only fair if there is equality of opportunity. ## Footnote This means that all individuals should have the same chances to succeed, regardless of their background.
53
What are the trade-offs between fairness and efficiency?
There are inherent trade-offs between achieving fairness and maintaining efficiency in economic systems. ## Footnote Balancing these two can be challenging, as measures to promote fairness can sometimes hinder economic efficiency.
54
What is the 'veil of ignorance'?
A thought experiment where individuals design rules without knowing their future circumstances. ## Footnote This concept is used to promote unbiased decision-making in fairness.
55
What is the maximin principle?
Preference for the welfare of the least advantaged. ## Footnote This principle advocates for policies that improve the condition of the worst-off individuals in society.
56
What is a public bad in the context of inequality?
High inequality leads to negative societal outcomes such as increased crime and social unrest. ## Footnote Inequality is often viewed as a public bad because it adversely affects social cohesion and stability.
57
What does Stiglitz argue is the main cause of inequality?
Rent seeking by the wealthy. ## Footnote Wealthy individuals seek to gain a larger share of resources and influence political power to shape economic conditions.
58
How does inequality perpetuate itself?
Health and opportunity transfer across generations. ## Footnote This means that children of wealthy parents often have better health and opportunities, continuing the cycle of inequality.
59
What does Piketty suggest about fiscal redistribution?
Fiscal redistribution is preferable since increasing the cost of labor through direct distribution increases unemployment. ## Footnote Piketty argues for taxing wealth rather than income to address inequality.
60
What are the two options for fiscal redistribution according to Piketty?
Tax capital or labor income. ## Footnote Piketty emphasizes the need to focus on taxing wealth to reduce inequality.
61
What is individual sovereignty?
A philosophical construct key to the notion of private enterprises and widely embraced in the western world. ## Footnote Individual sovereignty emphasizes personal autonomy in economic decisions.
62
What is economic freedom?
The freedom to enter into voluntary economic agreements. ## Footnote Economic freedom is a fundamental aspect of individual sovereignty, allowing individuals to make their own choices.
63
What is consumer sovereignty?
The right to one’s own tastes and preferences. ## Footnote Consumer sovereignty implies that consumer choices drive what is produced and sold in the economy.
64
What is paternalism?
Placing limits on a person’s liberty or autonomy for their own good. ## Footnote Paternalism often raises ethical questions about the balance between protecting individuals and respecting their freedom.

COMM 394 (1 decks)

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