ch 10 terms

Question 1

define externality

Answer 1

unrelated third party is impacted by transaction between two parties

Question 2

define positive externality

Answer 2

third party benefits

Question 3

define negative externality

Answer 3

third party is worse off

Question 4

how do externalities affect supply/demand graph

Answer 4

equilibrium can’t be reached
social cost and social demand change

Question 5

define private cost

Answer 5

cost directly incurred by seller

Question 6

define private demand

Answer 6

value buyers are willing to pay

Question 7

define public cost

Answer 7

cost to all of public for
good

Question 8

define public demand

Answer 8

social value/willingness to pau

Question 9

what does it mean to internalize externality

Answer 9

to alter incentives so producers feel good or bad consequences for their actions
steer producer down the right path

Question 10

define Pigovian tax

Answer 10

tax that alters incentives to internalize externality

Question 11

define Pigovian subsidy

Answer 11

subsidy that alters incentives to internalize externality

Question 12

what is the Coase theorem

Answer 12

private parties bargain without cost over allocation of resources
solve externalities on their own

Question 13

define public policy

Answer 13

when private solutions to externalities fail, govt steps in

Question 14

define command and control policy

Answer 14

regulate behaviour directly
limits and requirements

Question 15

market-based public policy

Answer 15

incentivize
pigovian tax
pigovian subsidy