Define the following terms and explain their importance to the study of economics.
a. public good
b. externality
c. irreversible decision
d. moral hazard
e. rent seeking
What will be an ideal response?
a. A public good is a commodity or service whose benefits are not depleted by an additional user, and for which it is difficult or impossible to exclude persons from its benefits.b. An externality is an event incidental to an economic action. It can be beneficial or detrimental. Externalities are universal and result in (socially) nonoptimal outcomes. Specifically, beneficial externalities result in underproduction of goods and services, while detrimental externalities result in overproduction of goods and services.c. An irreversible decision is one in which something is permanently lost, for example, building a dam may permanently destroy a fish species or a natural wilderness. Economists generally think that private markets alone do not handle these sorts of problems well.d. Moral hazard refers to the tendency of insurance to discourage policyholders from protecting themselves from risk. The result can be higher insurance rates for everyone.e. Rent seeking refers to unproductive activity in pursuit of economic profit. While producing for profit is generally desirable, rent seeking does not increase the amount of goods and services available for consumption.
You might also like to view...
The total demand for a public good is found by
A) horizontally summing all individual demands. B) vertically summing all individual demands. C) finding the demand from the median voter. D) dividing the marginal cost of the good by the number of voters.
Jon's income-consumption curve is a straight line from the origin with a positive slope. Now suppose that Jon's preferences change such that his income-consumption curve remains a straight line but rotates 15 degrees clockwise
Jon's demand curve for the good on the horizontal axis A) will shift left. B) will shift right. C) will not change. D) might do any of the above.