1. What would happen to a government that could not provide secure property rights? In a state where property rights are insecure, no state will experience economic development b/c no one will invest if they’re not sure that their property is secure

2. What is a private good? Most goods are privately bought and sold as part of a market that facilitates means for exchange. We call these private goods. When you’re hungry, you buy a burger. When you’re thirsty, a soda.

3. What are public goods? Most goods are private…some however, are public goods provided by government. Public goods are things that individuals cannot provide because they are non-excludable and non-rival in consumption. No individual would take it upon themselves to provide it – therefore, the government will provide it 1) Non-excludability: It is not possible to exclude non- payers from consuming the good. 2) Non-rivalry in consumption: Additional people consuming the good do not diminish the benefit to others. What are some examples of public goods?

4. What is the free-rider problem? A free rider (or freeloader) is some who consumes a resource without paying for it, or pays less than the full cost The term free rider comes from the example of someone using the public transportation system without buying a ticket. Another example of a free rider is someone who does not pay his or her share of taxes, which help pay for public goods that all citizens benefit from, such as roads, water treatment plants and fire services If too many people do this, the system will not have enough money to operate. People will be inclined to free-ride and so government has to intervene to solve the collective action problem

5. What is the welfare state? AKA social expenditures – the state’s provision of public benefits such as education, health care and transportation Who benefits from social expenditures?

6. What is inflation? Governments set Monetary Policy and regulate the money supply through a central bank. The mandate of most central banks is to keep inflation under control. Review your ch. 4 notes – How do you define inflation? How do governments regulate it?

7. Political Economic Systems: Comparing Outcomes Governments will measure economic performance using a variety of indicators How can we compare and measure successes or limitations of each? - Gross Domestic Product (GDP) - Purchasing Power Parity (PPP) - Gini Index - Human Development Index (HDI)

8. Gross Domestic Product (GDP) Defined as the total value of all goods and services produced within a country in a given year irrespective of who owns it and excluding income citizens and groups earn outside the country Is GDP a good measure of economic performance? In what circumstances might it be misleading?

9. Purchasing Power Parity (PPP) PPP looks at GDP in terms of buying power – attempts to indicate the buying power of money in each country by comparing the cost of a “shopping basket” of items such as food and housing – takes into consideration what people can buy using their income in their local economy In countries where costs are low, GDP is increased when adjusted for PPP In countries where costs are high, GDP is lowered when adjusted for PPP What are the limits of GDP and PPP?

10. Gini Index Mathematical formula that measures inequality (not poverty) in countries Perfect equality = 0, perfect inequality = 100 The higher the score, the more inequality Conclusions: Higher inequality in liberal countries than social democratic ones Higher inequality in poorer than richer countries

11. Human Development Index (HDI) A U.N. developed measure that takes into account not only wealth and distribution but also outcomes It measures the well-being of a country’s people by factoring in adult literacy, life expectancy, educational enrollment and GDP Emphasis on poverty/development over inequality Not focused on wealth, but rather outcome of that wealth