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5. What are private goods? Who can easily handle the markets for private goods?
6. What are public goods? What distinguishes public goods from private goods?
7. What is the relationship between exclušion principle and the Free-Rider problem?
8. Why are public goods typically underproduced?
9. What are examples of negative externalities? Provide a couple of examples
10. What are examples of negative externalities? Provide a couple of examples
11. In a free market system, the cost and benefits of externalities are not included in the price of a
product. What does this mean?
12. The combined operation of the market system and government has provided an equitable
distribution of income in US. True or False. Why?
13. According to chart in chapter 4 of your textbook, since 1950 in US the percentage contribution
of Federal Government purchases in GDP has decreased, the percentage contribution of State and
Local Governments in purchases has increased, and the total contribution of government has
increased slightly. True or False. How do you think it will be in the future and Why?
14. What is a progressive tax? Provide specific examples
15. What is meant by government failure?
5. A private good is a product that must be purchased to be consumed , and consumption by one individual prevents another individual from buying that product. In simple terms, if there exist a competition between individuals to obtain the good and consume it, such a good is known as private good.
Example: Different goods have elements of private and public goods. Like a professor's BMW can be a private good because he dont allow anyone else to drive or ride his car.
As we said earlier, there are different possibilities for handling a private market. it can be fully private or it can be public private partnership, that will be handling the market for the benefits.
6. A public good is generally open to use and consumption by one does not hamper or deter any other person consuming it. In simple words, many public goods are consumed at no cost. Example: the fountain water that we drink water from, public television even the FM or the AM.
The main thing that distinguishes it from private good is its availability and the free cost attitude.
7.Exclusion principle basically focusses on the revenue on the profit that one is making from selling some items, whereas free rider problem is associated with public goods. What happens is that one private good is produced to make a profit whereas one public good is freely accessible. Often private goods have finite availability, making them exculdable in nature. For example, only a certain number of certain pair of designer shoes are produced, so not everyone can wear the same ones. The majority of private goods must be purchased for a cost. This cost offsets the fact that the use of the good by the one prevents the use of good by the another.
Whereas, for public good nothing such thing happens, and it generates the free rider problem.It represnts the burden on a shared resource that is created by its use or overuse by people who aren't paying theri fair share for it or aren't paying anything at all. It is consudered as one of the failures of the conventional free market sysytem.
8.Public goods are mostly underproduced because of the fact that it initiates the free rider problem, where a good share of it always overused by the people who donates nothing and it causes a burden on the state . It can be overcome by different methods such as imposong a small fee on everyone, thus not making it free as it should be or governments can turn their public resources into private resources and many others.
9/10. Examples like waste, arise from consumption while other externalities like carbon emissions from factories, arise from production. Also factors like no one owns the ocean and they are not private property of anyone, so ships pollute the sea without the fear of being taken to court.
11. The major reason for not including the externalities in the free market system is the addition of charges levied on the products i.e. if any externalities are added the prices will go up and it won't be free anyome and the people habe to pay more money than ever. Thus to prevent such occurrence, this is not included.
12.It is False. Based on different findings it has been found that income and other inequalities are quite high in US than its neighbouring countries. If one look at the Lorenz curve and Gini coefficient for US, he/ she would find that ineqaulity is prevalent for mostly all in US.
13.CHART IS MISSING.
14.Progressive tax in simpler terms is one which imposes a lower tax rate for low income earners and high tax rate for high income earners, making it based on tax payer's ability to pay. That means it takes large percentage from high income groups and low from lower income groups.
Example : The overall federal tax system is progressive,that is like the individual income tax as well as corporate income tax.
15.Government failure related to taxation can be many because one of the many factors is complexity.The exploitation of loopholes leads to calls for new legislation which in turn makes the law more complex. In short, complexity begets more complexity. This law can be broken dwon by true tax simplification, followed by ongoing legislative and adminidtrative discipline to avoid compelxity creep.
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