74: Intro to Externalities

Question 1

marginal cost of pollution

Answer 1

additional cost imposed on society by additional unit of pollution

Question 2

marginal benefit of pollution

Answer 2

additional benefit to society from an additional unit of pollution, such as not having to spend resources on clean air technology

Question 3

socially optimal quantity of pollution

Answer 3

quantity of pollution society would choose if all the costs and benefits were fully accounted for

Question 4

external cost = negative externality

Answer 4

uncompensated cost that an individual imposes on others

Question 5

external benefit = positive externality

Answer 5

benefits that individuals confer on others without receiving compensation

Question 6

coase theorem

Answer 6

even in the presence of externalities, an economy can reach an efficient solution, provided the legal rights are clearly defined and the transaction costs are low

Question 7

transaction cost

Answer 7

cost to individuals of making a deal to retract someone’s rights or exceed your own

Question 8

internalized externalities

Answer 8

making deals that take externalities into account