All Flashcards
How can a per-unit subsidy correct the market failure associated with positive externalities like vaccinations?
A per-unit subsidy can increase the quantity of vaccinations to the socially optimal level by shifting the MPB curve closer to the MSB curve.
What is the impact of progressive taxes on income inequality?
Progressive taxes can reduce income inequality by redistributing wealth from higher earners to lower earners through government programs.
How can government intervention address the underproduction of public goods?
Government intervention can address the underproduction of public goods by directly providing the goods or subsidizing their production.
What is the goal of government intervention in markets with externalities?
The goal is to achieve social efficiency by producing where MSB = MSC, correcting for overproduction (negative externalities) or underproduction (positive externalities).
How might regulations be used to address negative externalities?
Regulations can limit the amount of pollution a factory can emit, forcing the firm to internalize some of the external costs.
How does a flat tax differ from a progressive tax in terms of income redistribution?
A flat tax applies the same percentage to all income levels and does not redistribute income, while a progressive tax redistributes income from higher to lower earners.
What does the Lorenz Curve illustrate?
The Lorenz Curve illustrates the distribution of wealth in a country, showing the cumulative percentage of total income received against the cumulative percentage of recipients.
How does the distance of the Lorenz Curve from the line of perfect equality relate to inequality?
The further the Lorenz Curve is from the line of perfect equality, the more unequal the distribution of wealth.
What is represented on the axes of a graph illustrating the market for flu vaccinations with externalities?
The x-axis represents the quantity of flu shots, and the y-axis represents the price, cost, or benefit.
On a graph of flu vaccinations with externalities, what do the MPC, MSB, and MPB curves represent?
MPC represents the marginal private cost, MSB represents the marginal social benefit, and MPB represents the marginal private benefit.
How are the market quantity (Qm) and the socially optimal quantity (Q*) identified on a graph of flu vaccinations with externalities?
Qm is at the intersection of MPB and MPC, while Q* is at the intersection of MSB and MPC.
Define Social Efficiency.
When Marginal Social Benefit (MSB) equals Marginal Social Cost (MSC).
What is Market Failure?
When the free market doesn't produce the socially optimal quantity.
Define Negative Externality.
Costs imposed on a third party not involved in a transaction.
Define Positive Externality.
Benefits conferred on a third party not involved in a transaction.
What is a Private Good?
Rivalrous and excludable.
What is a Public Good?
Non-rivalrous and non-excludable.
Define Unregulated Quantity.
Quantity the market produces without government intervention.
Define Fair Return Quantity.
Quantity allowing firms to cover costs and earn a normal profit.
Define Socially Optimal Quantity.
Quantity where MSB = MSC.
Define Lorenz Curve.
A graph showing the distribution of wealth in a country.
Define Gini Coefficient.
A number between 0 and 1 measuring inequality.
Define Progressive Tax.
Higher earners pay a higher percentage of their income in taxes.
Define Regressive Tax.
Lower earners pay a higher percentage of their income in taxes.