Ch 5. Market Failure and Socially Undesirable Outcomes I

Question 1

Common Pool Resources

Answer 1

Resources that are not owned by anyone, do not have a price and are available for anyone to use iwthout payment

Question 2

Rivalrous

Answer 2

Characteristic of a good according to which its consumption by one person reduces its availability for someone else

Question 3

Excludable

Answer 3

Characteristic of goods according to which it is possible to exclude people from using the good by charging a price for it, if someone is unwilling/unable to pay, they are excluded

Question 4

Non-Excludable

Answer 4

Characteristic of some goods where it is not possible to exclude someone from using a good, because it is not possible to charge a price

Question 5

Tragedy of the Commons

Answer 5

Story about a commonly owned land, and how it became overused and degraded

Question 6

Unsustainable Production

Answer 6

Production that uses resources unsustainably, leading to depletion/degradability

Question 7

Market Failure

Answer 7

market fails to allocate resources efficiently, or to provide the quantity and combination of goods and services mostly wanted by society.

Question 8

Externality

Answer 8

Actions of consumers/producers give rise to negative/positive side effects on other people who are not part of the action, and interest not taken into consideration

Question 9

Positive Externality

Answer 9

Side effects on third party are positive or beneficial, aka spillover benefits

Question 10

Negative Externality

Answer 10

Side effects on third party are negative and harmful

Question 11

Socially optimum Output

Answer 11

Levels of output that is best from the socially point of view, determined by the achievement of allocative efficiency (MSB = MSC)

Question 12

Marginal Private Cost (MPC)

Answer 12

Cost to producers of producing one more unit of a good

Question 13

Marginal Social Costs (MSC)

Answer 13

Refers to costs to society of producing one more unit of a good

Question 14

Marginal Private Benefit (MPB)

Answer 14

Refers to benefits to consumers from consuming one more unit of a good

Question 15

Marginal Private Benefit (MPB)

Answer 15

refers to benefits to consumers from consuming one more unit of a good

Question 16

Marginal Social Benefit (MSB)

Answer 16

Refers to benefits to society from consuming one more unit of a good

Question 17

Negative Production Externalities

Answer 17

Negative externalities caused by production activities, leading to a situation where MSC > MPC

Question 18

Pigouvian Tax

Answer 18

Indirect tac designed to correct negative externalities of production/consumption

Question 19

Carbon Tax

Answer 19

Tax per unit of carbon emissions of fossil fuels, considered by many countries as a policy to deal with the problem of climate change

Question 20

Tradable Permits

Answer 20

permits issued by the government authority or an international body, that can be traded in a market, objective is to lower the amount of pollutants

Question 21

Collective Self Government

Answer 21

Solution involving the use of common pool resources where the users take control of the resources and use them in a sustainable way, counters the tragedy of the commons.

Question 22

Negative Consumption Externality

Answer 22

Leading to a situation where MSB < MPB, external cost caused by consumptions

Question 23

Demerit Goods

Answer 23

Considered to be undesirable for consumers and are over provided by the market. Reasons include over provision