Ch. 10

Question 1

cap and trade

Answer 1

A quantity regulation implemented by allocating a fixed number of permits, which can then be traded.

Question 2

club good

Answer 2

A good that is excludable, but nonrival in consumption

Question 3

Coase Theorem

Answer 3

If bargaining is costless and property rights are clearly established and enforced, then externality problems can be solved by private bargains

Question 4

common resources

Answer 4

A good that is rival and also nonexcludable

Question 5

corrective subsidy

Answer 5

A subsidy designed to induce people to take account of the positive externalities they cause

Question 6

corrective tax

Answer 6

A tax designed to induce people to take account of the negative externalities they cause

Question 7

external benefit

Answer 7

A benefit accruing to bystanders

Question 8

external cost

Answer 8

A cost imposed on bystanders

Question 9

externality

Answer 9

A side effect of an activity that affects bystanders whose interests aren’t taken into account

Question 10

free-rider problem

Answer 10

When someone can enjoy the benefits of a good without bearing the costs

Question 11

marginal external benefit

Answer 11

The extra external benefit accruing to bystanders from one extra unit

Question 12

marginal external cost

Answer 12

The extra external cost imposed on bystanders from one extra unit

Question 13

marginal private benefit

Answer 13

The extra benefit enjoyed by the buyer from one extra unit

Question 14

marginal private cost

Answer 14

The extra cost paid by the seller from one extra unit

Question 15

marginal social benefit

Answer 15

All marginal benefits. = marginal private benefit +marginal external benefit

Question 16

marginal social cost

Answer 16

All marginal costs. = Marginal private costs + marginal external costs

Question 17

negative externality

Answer 17

An activity whose side effects harm bystanders

Question 18

nonexcludable

Answer 18

when someone cannot be easily excluded from using something

Question 19

nonrival good

Answer 19

A good for which one person’s use doesn’t subtract from another’s

Question 20

positive externalities

Answer 20

An activity whose side effects benefit bystanders

Question 21

public good

Answer 21

A nonrival good that is nonexludable and hence subject to the free rider problem

Question 22

Rational Rule for Society

Answer 22

Produce more of an item if its marginal social benefit is greater than (or equal to) the marginal social cost

Question 23

rival good

Answer 23

A good for which your use of it comes at someone else’s expense

Question 24

socially optimal

Question 25

tragedy of the commons

Answer 25

The tendency to overconsume a common resource