Chapter 10: Externalities
This term describes a cost that “spills over” onto people who aren’t directly involved in producing or consuming.
Negative externality
This term describes people’s preference to avoid uncertain outcomes, which makes them willing to buy insurance.
risk aversion
This tax, levied on wages, interest, dividends, and business profits, is the single largest source of federal revenue in the U.S.
personal income tax
The extra output gained by adding one more worker.
marginal product of labor
Data that come from a researcher running a randomized controlled trial are known by this name.
experimental data
When someone’s actions create benefits for bystanders, like well-kept gardens improving neighborhood appeal, this occurs.
Positive externality
To discourage over‐use of “free” doctor visits, many insurance plans require you to pay this small, fixed amount each time you see a provider.
co‐payment
A tax that charges every taxpayer the same fixed amount, regardless of income, and creates zero deadweight loss.
lump-sum tax
A group of firms that agree on output or prices to acts like a single monopolist.
cartel
When economists analyze information gathered from surveys or administrative records without intervening, this kind of data is used.
observational data
This kind of government charge is placed on activities that generate negative externalities, like pollution.
Pigovian tax
This U.S. government program provides health insurance primarily for people aged 65 and older.
Medicare
Calculated as total taxes paid divided by total income, this rate measures the overall share of income that a taxpayer gives up.
average tax rate
The outcome in which no firm can improve its profit by changing its own strategy alone.
Nash equilibrium
These data present information on many subjects (like people or firms) at a single point in time.
cross-sectional data
To encourage activities with positive spillovers, such as vaccinations, the government might provide this payment.
subsidy
In countries like Canada and the U.K., the government runs and pays for virtually all healthcare through this type of system.
single‐payer system
This principle of equity holds that taxes should be based on taxpayers’ ability to bear the burden, so richer individuals pay more.
ability-to-pay principle
The point where the quantity of labor demanded equals the quantity supplied.
equilibrium wage
Data on one variable (e.g., inflation rate) collected at regular intervals (e.g., quarterly GDP over years) are known as this type.
time-series data
Because externalities prevent private markets from allocating resources correctly, economists call this problem.
market failure
Enacted in 2010, this landmark U.S. law created health insurance exchanges and an individual mandate to expand coverage.
Affordable Care Act
The reduction in total surplus that occurs because a tax distorts incentives and alters market behavior is known as this.
deadweight loss
The classic game that shows why two parties fail to cooperate even when it’s mutually better.
prisoners’ dilemma
This term describes an event that creates variation similar to a randomized trial, allowing causal inference from observational data.
natural experiment