Ch 18 Flashcards
___ are costs that fall directly on an economic decision maker.
Private costs
___ are costs that are imposed on someone other than the person who caused them.
External costs
___ is the sum of the private and external costs.
Social cost
___ are benefits that accrue directly to the decision maker.
Private benefits
___ are benefits that accrue without compensation to someone other than the person who caused them.
External benefits
___ is the sum of the private and external benefits.
Social benefit
___ is the effect that an additional user of a good or a participant in an activity has on the value of that good/activity for others.
Network externality
A(n) ___ externality occurs when a good/service is being produced
production
A(n) ___ externality occurs when a good/service is being consumed.
consumption
In an unregulated market, equilibrium price and quantity occur where which two curves intersect?
Private supply curve (S = MCprivate) and market demand curve (D = MBprivate)
A negative consumption externality moves the private supply curve to the ___ when producers account for social cost.
left
A positive consumption externality moves the private demand curve to the ___ when consumers don’t account for social benefits.
right
___ reduce total surplus by creating a deadweight loss to society.
Externalities
The ___ is the idea that individuals can reach an efficient equilibrium through private trades, even in the presence of an externality.
Coase theorem
The Coase theorem holds under which two assumptions?
- People can make enforceable agreements (contracts) to pay one another
- There are no transaction costs in coordinating and enforcing agreements.
