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LERNER INDEX: The difference between price (p) and marginal cost (mc) as a fraction of price, that is [p-mc]/p. The Lerner index is usually taken as an indicator of market power because the larger the index, the larger the difference between price and marginal cost, that is, the larger the distance between the price and the competitive price. The Lerner index depends on the elasticity of demand. The Lerner index is also called the price-cost margin.

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Lesson 11: Circular Flow | Unit 3: Government Page: 13 of 22

Topic: Government Purchases <=PAGE BACK | PAGE NEXT=>

Government spending is divided into government purchases of GDP and transfer payments.
  • Transfer payments include welfare to the poor, unemployment compensation, and Social Security benefits.
  • Transfer payments are like negative taxes, but flow from the government sector to the household sector.
  • The circular tax flow is the net tax flow from households to government, taxes minus transfer payments.
  • Government purchases are the green flow from the government sector to the product markets.
  • As an expenditure on GDP, government purchases are comparable to consumption by the household sector and investment by the business sector.

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FALLACIES

Logical errors in an argument or evaluation of a policy. The six common fallacies that surface in economic analysis are: false cause, personal attack, division, composition, false authority, and mass appeal. These fallacies are most troublesome because, although false, they seem correct, especially when used by slick-talking, charismatic people (politicians) or when the fallacies support preconceived notions or fundamental beliefs.

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Today, you are likely to spend a great deal of time at a garage sale wanting to buy either a stretchable, flexible watch band or high-gloss photo paper that works with your printer. Be on the lookout for attractive cable television service repair people.
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The wealthy industrialist, Andrew Carnegie, was once removed from a London tram because he lacked the money needed for the fare.
"I can feel guilty about the past, apprehensive about the future, but only in the present can I act."

-- Abraham Maslow, Psychologist

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