Chapter 10: Externalities and Public Goods Flashcards
Externalities
a side effect of activity that impacts bystanders whose interests are not taken into account or ignored, which usually lead to market failure. there are positive (beneficial) externalities and negative (harmful) externalities
Types of Interests
private (personal costs or benefits) and social (all costs and benefits)
Marginal PRIVATE Cost
extra amount paid by seller by producing one extra unit
Marginal EXTERNAL Cost
the extra amount imposed on bystanders by producing one extra unit
Marginal SOCIAL Cost
all costs of the matter, regardless of who pays them (private plus external)
Marginal PRIVATE Benefits
the extra enjoyment of the buyer from purchasing one extra unit
Marginal EXTERNAL Benefits
the extra enjoyment to bystandes from one extra unit
Marginal SOCIAL Benefits
all benefits, regardless of who recieves them (private plus external)
Externality Problem
market failure is a great problem with externalities, but you must internalize to solve them. the socially optimal quantity lies where benefits = costs.
Coase Theorem
if bargaining is costless and property rights are clearly established and enforced, externality issues can be solved by private bargains
Excludable Goods
easily excluded from use, such as not using someones car simply because you don’t have the keys
Non-Excludable Goods
when something cannot be easily excluded from use, such as stopping other people from using and enjoying fireworks, as it still effects you
Rival Goods
when your use of something takes away from someone else’s gains, such as eating the last cupcake on the tray so others cannot
Non-Rival Goods
when your use of something does not take away from another’s gains, such as watching television in your house as an unlimited amount of viewers can stream channels
