Microeconomics, Ch 5,11,12

Public Finance subdiscipline of economics that studies the various ways in which governments raise and expend money
government purchases exhaustive, the products purchased directly absorb (require the use of) resources and are part of the domestic output
transfer payments nonexhaustive, Do not directly absorb resources or create output
personal income tax a tax levied on the taxable income of individuals, households, and unincorporated firms, progressive
marginal tax rate the tax rate paid on each additional dollar of income
taxable income incomes of households and unincorporated businesses after certain exemptions and deductions are taken into my account
progressive tax higher incomes pay a larger percentage of their incomes as taxes than lower incomes; TAX SYSTEM.
average tax rate total tax paid divided by total taxable income as a percentage
payroll taxes taxes levied on employees and employees equal to a percentage of the wages and salaries paid to the employees, regressive
corporate income tax a tax levied on the net income (accounting profit) of corporations, proportional
sales tax a tax levied on the retail cost of a broad group of products, regressive
excise tax a tax levied on the production of a specific product or on the quantity of the product purchased (sin tax)
property tax tax on value of property (capitol, land, stocks and bands, other assets) owned by firms and households. Local governments obtain about 71% of tax revenue from these
benefits-received principle idea the people who receive the benefits from government-provided goods and services should pay the taxes required to finance them
ability-to-pay principle idea that people who have greater income should pay a greater proportion of it as taxes than those who have less income
regressive tax tax whose average tax rate decreases as the taxpayers income increases
proportional tax tax whose average tax rate remains constant as the taxpayers income increases
tax incidence degree to which a tax falls on a particular person or group
efficiency (deadweight) loss of a tax loss of net benefits to society because a tax reduces the production and consumption of a taxed good below the level of allocative efficiency
income inequality the unequal distribution of an economy’s total income among households or families
Lorenz curve A curve that shows an economy’s distribution of income by measuring the cumulated percentage of income receivers along the horizontal axis and the cumulated percentage of income they receive along the vertical axis
Gini ratio a numerical measure of the overall dispersion of income among an economy’s income receivers
income mobility the extent to which income receivers move from one part of the income distribution to another over some period of time
noncash transfers government transfer payments in the form of goods and services (or vouchers to obtain them) rather than money
causes of income inequality ability, education and training, discrimination, preferences and risks, unequal distribution of wealth, market power, and luck, connections and misfortune
define Ability Differences in mental, physical and aesthetic talents, inculding intelligence and skills
define Education and Training amount of education and training which can determine capacity to earn income
define Discrimination inequality in education, training, hiring, and promotion; racial, ethnic and gender discrimination
define Preferences and Risks willingness to assume risk and unpleasant jobs which typically lead to more pay
define Unequal Distribution of Wealth unequal ownership of wealth; those who earn more and save more have more wealth than those who do not
define Market Power ability to ‘rig the market’ on one’s own behalf
define Luck, Connections and Misfortune being in the right place at the right time, personal contacts and political connections, and illness, accidents and unemployment etc., all factor in to income inequality
causes of growing inequality greater demand for highly skilled workers, demographic changes and International trade, Immigration and Decline in Unionism
Equality income equality maximizes the total consumer satisfaction (utility) from any particular level of output and income
law of diminishing marginal utility principle that the amount of extra satisfaction ( marginal utility) from consuming a product declines as the more of it is consumed
Equality & Efficiency Trade-off the decrease in economic efficiency that may accompany an incfreae in income equality
poverty rate the percentage of the population with incomes below the official poverty income levels established by the federal governments
entitlement programs government programs that garuntee particular levels of transfer payments or noncash benefits to all who fit the programs’ criteria
Social Security federal pension program (financed by payroll taxes on employers and employees) that replaces part of the earnings lost when workers retire, become disabled, or die
Medicare federal insurance program (financed by payroll taxes on employers and employees) that provides health insurance benefits to those 65 years or older
unemployment compensation federal-state social insurance program (financed by payroll taxes and employers) that makes income available to workers who are unemployed
Supplemental Security Income (SSI) federal program (financed by general tax revenues) that provides a uniform nationwide minimum income for the aged, blind and disabled who do not qualify for benefits under the social security program
Temporary Assistance for Needy Families basic welfare programs (financed through general tax revenues for low income families
food-stamp program federal program (financed through general tax revenues) that permits eligible low-income persons to obtain vouchers that are usable to buy food
Medicaid federal program (financed by general tax revenues) that provides medical benefits to people covered by the Supplemental Security Income and Temporary Assistance for Needy Families programs
Earned-Income Tax Credit refundable federal tax credit provided to low-income wage earners to supplement their families’ incomes and encourage work
productive efficiency the production of a good in the least costly way
allocation efficiency the production of the “right” mix of goods and services
consumer surplus difference between what consumer is willing to pay for a good and what the consumer actually pays
producer surplus difference between the actual price a producer receives and the minimum price the producer would accept.
Private Goods produced in the market by firms
Private Goods characteristics rivalry, excludability
Rivalry when one person buys/consumes a product, it is not available for another person
Excludability sellers can keep people who do not pay for a product from obtaining it
Public Goods provided by the government (offered for free)
Public Goods characteristics nonrivalry, nonexcludability
Nonrivalry when one person buys/consumes a product, it is still available for another person.
Nonexcludability no effective way of excluding individuals from the benefit-free rider problem
Externalities cost or benefit occurring to a third party external to transaction
Positive Externalities (education) too little is produced, demand-side market failures
Negative Externalities (spillover costs) too much is produced, supply-side market failures
Correct Negative Externalities (Government intervention) PRIVATE BARGAINING, LIABILITY RULES AND LAWSUITS, MARKET FOR EXTERNALITIY RIGHTS, direct controls, specific taxes
Direct Controls government regulations
Specific Taxes levy taxes or or changes
Correct Positive Externalities (Government intervention) PRIVATE BARGAINING, subsidies to buyers(new mothers), subsidies to producers(farmers), government provision
Government Provision provides the products for free or a minimum charge (education)
Federal Tax Revenues personal income tax, progressive tax, excise tax, corporate income tax, payroll tax, marginal tax rate
Federal Expenditures national defense, interest on public debt, health, pensions and income security, and all other.

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