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
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. An externality can be beneficial or detrimental. Externalities are universal and result in (socially) non-optimal outcomes. Specifically, beneficial externalities result in under-production of goods and services, while detrimental externalities result in over-production of goods and services.
c. An irreversible decision is one in which something is permanently lost, e.g., 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...
Which of the following statements is incorrect? a. Job losers typically account for 50 to 60 percent of the unemployed
b. Unemployment rates in the United States during the Great Depression exceeded 50 percent. c. The labor force participation rate is the percentage of the non-institutional population over age 16 that is in the labor force. d. The increase in the labor force participation rate since 1950 can be partly attributed to the entry of baby boomers into the labor force.
For the average American, innovation has led to:
a. an average income that is below many countries because of monies spent on R&D b. an average income that is not paralleled anywhere in the world c. an average income that exceeds that of all but the richest countries d. None of the above is correct.
If a transaction in the balance of payments of Country A enters the foreign exchange market, then it is fair to say that:
a. Actually by definition, transactions in a nation's balance of payments cannot enter into the foreign exchange market. b. Uses of funds in Country A's balance of payments are supplies of Country A's currency in the foreign exchange market. c. Uses of funds in Country A's balance of payments are demands for Country A's currency in the foreign exchange market. d. Sources of funds in Country A's balance of payments are demands for foreign currencies in the foreign exchange market.
Drug companies are allowed to be monopolists in the drugs they discover in order to
a. increase the availability of expensive but useful medications. b. increase the overall welfare of society through better health because drug companies continually produce better medications. c. encourage research. d. All of the above are correct.