Welfare Economics and Happiness Indicators

Happiness is not solely determined by economic indicators like GNI and GDP, as many non-economic factors also contribute to an individual's happiness.

While absolute population numbers continue to grow, the growth rate is falling, particularly in countries like China where the population is already declining.

Since 2008, the majority of the world's population now lives in urban areas, with the most significant growth occurring in developing countries.

<p>Allocative efficiency occurs when the value output of buyers matches the value output of sellers, resulting in optimal resource allocation in the market.</p> Signup and view all the answers

<p>Consumer surplus is the difference between the maximum amount a buyer is willing to pay for a good and the actual price paid for it.</p> Signup and view all the answers

<p>Willingness to pay refers to the maximum price an individual is ready to pay for a good or service based on their perceived value of it.</p> Signup and view all the answers

<p>Falling fertility rates alongside increasing life expectancy lead to an aging population, which can affect economic productivity and social systems.</p> Signup and view all the answers

<p>Subjective well-being refers to an individual's personal assessment of their own happiness and life satisfaction.</p> Signup and view all the answers

<p>Economic growth is the positive externality associated with the production of educated individuals.</p> Signup and view all the answers

<p>The government can subsidize education to help shift the equilibrium towards the optimum.</p> Signup and view all the answers

<p>The Coase Theorem suggests that negative externalities can be resolved without government intervention if property rights are clear and bargaining costs are negligible.</p> Signup and view all the answers

<p>Private ways include social norms, charities, self-interest arrangements, and social contracts.</p> Signup and view all the answers

<p>One key challenge is transaction costs, which can hinder effective negotiation between parties.</p> Signup and view all the answers

<p>Government failure refers to situations where political motivations lead to decisions that are economically inefficient.</p> Signup and view all the answers

<p>Pigovian taxes aim to reduce pollution by imposing costs on firms that do not achieve certain pollution reduction targets.</p> Signup and view all the answers

<p>Social contracts can establish mutual agreements among community members to adhere to norms that mitigate externalities.</p> Signup and view all the answers

<p>The central bank provides money to both parties involved in a transaction, typically large banks, to ensure the transaction occurs.</p> Signup and view all the answers

<p>The money supply is defined as the quantity of money available in the economy.</p> Signup and view all the answers

<p>The primary assets of commercial banks include reserves of cash, securities, and loans, while their liabilities include demand deposits and savings deposits.</p> Signup and view all the answers

<p>'Spread' refers to the difference between the interest that debtors pay to the bank and the interest the bank pays to its creditors.</p> Signup and view all the answers

<p>Open-market operations are used by the central bank to increase or decrease the money supply by buying or selling government bonds.</p> Signup and view all the answers

<p>Increasing the refinancing rate decreases the money supply.</p> Signup and view all the answers

<p>Banks must ensure that reserves are full and that their assets equal their liabilities plus equity at the end of the day.</p> Signup and view all the answers

<p>Quantitative easing is a tool where the central bank purchases large amounts of financial assets to inject liquidity into the economy.</p> Signup and view all the answers

<p>Consumer surplus is the difference between what buyers are willing to pay for a good and what they actually pay. It is significant as it reflects the overall economic well-being and satisfaction of consumers in the market.</p> Signup and view all the answers

<p>Earning $41,000 results in a take-home income of $26,650 after 35% taxes, whereas $39,000 yields $25,350, making the latter more favorable.</p> Signup and view all the answers

<p>Producer surplus is the amount left to sellers after subtracting their costs from sales. Non-economists often refer to it as profit.</p> Signup and view all the answers

<p>A lump-sum tax is a fixed amount paid by every individual regardless of their income, unlike progressive taxes where the rate increases with income.</p> Signup and view all the answers

<p>Market efficiency depends on how well the market responds to the behavior of buyers and sellers, leading to an equilibrium where resources are allocated effectively. Any shift in demand or supply impacts both parties' actions and overall market surplus.</p> Signup and view all the answers

<p>Pareto efficiency occurs when resources are allocated in a way that no party can be made better off without making another worse off. At this equilibrium, the market is balanced, indicating optimal resource distribution.</p> Signup and view all the answers

<p>Excludability means that a person can be prevented from using a good; an example is a subscription service like cable television.</p> Signup and view all the answers

<p>Public goods are neither excludable nor rival, while private goods are both; public goods include clean air, whereas private goods include food.</p> Signup and view all the answers

<p>A Pareto improvement is an action that makes at least one economic agent better off without harming others. It promotes more equitable benefits among participants in the market.</p> Signup and view all the answers

<p>The free-rider problem occurs when individuals benefit from public goods without paying for them, such as enjoying national defense without taxation.</p> Signup and view all the answers

<p>Market efficiency refers to optimal resource allocation benefiting both buyers and sellers, while equity addresses fairness in the distribution of well-being among market participants. Efficiency does not guarantee equitable outcomes.</p> Signup and view all the answers

<p>An increase in gasoline prices may initially raise producer surplus, but as buyers reduce consumption, overall producer surplus may diminish as companies adjust their production to align with new consumer behavior.</p> Signup and view all the answers

<p>Marginal social benefit is the additional benefit received from providing one more unit of a public good, while marginal cost is the cost of providing that unit.</p> Signup and view all the answers

<p>Total surplus is calculated by summing consumer surplus and producer surplus, reflecting the overall welfare generated in the market. It captures the net benefit to society from transactions.</p> Signup and view all the answers

<p>Common resources are rival but not excludable, meaning one person's use diminishes availability to others, while public goods are neither.</p> Signup and view all the answers

<p>Cost-benefit analysis compares the total benefits of a public good to its costs, helping governments decide whether to provide it.</p> Signup and view all the answers

<p>A country may struggle with attracting skilled workers and foreign investment to other industries, as they typically flow toward the more lucrative sector.</p> Signup and view all the answers

<p>A government with significant revenue from a dominant industry may become less dependent on its citizens for financing, leading to more autocratic governance.</p> Signup and view all the answers

<p>Powerful nations may invade resource-rich countries to secure access to those resources at low prices.</p> Signup and view all the answers

<p>Relative poverty is when individuals cannot afford a standard of living considered normal in their country, while absolute poverty means they cannot meet basic needs like food or shelter.</p> Signup and view all the answers

<p>The price elasticity formula measures how the quantity demanded of a good changes in response to a change in its price.</p> Signup and view all the answers

<p>An elasticity greater than 1 indicates that demand is elastic, meaning consumers are highly responsive to price changes.</p> Signup and view all the answers

<p>Consumer surplus is the difference between what consumers are willing to pay for a good and what they actually pay.</p> Signup and view all the answers

<p>Foreign currency exchange rates can affect the competitiveness of a country's exports, influencing the feasibility of diversifying its economy.</p> Signup and view all the answers