Chapter 16 - Externalities Flashcards
External cost
An uncompensated cost that an individual or firm imposes on others
External benefits
Benefits that individuals or firms confer on others without receiving compensation
Negative externalities & positive externalities
Negative are costs
Positive is benefits
The coase theorem
The economy can reach an efficient solution, even in the presence of externalities, if the costs of making a deal are sufficiently low
Environmental standards
Rules that protect the environment by specifying actions by producers and consumers
Emissions tax
Cost depends on the amount of pollution a firm produces
Pigouvian taxes
Taxes designed to reduce external costs
Tradable emissions permits
Licenses to emit limited quantities of pollutants; the licenses can be bought and sold by polluters
Pigouvian subsidy
A payment designed to encourage activities that yield external benefits
Technology spillover
A positive externality that results from knowledge spread among individuals and firms
Research cluster
Ongoing exchange of people and ideas among firms, universities, and research institutes located in close proximity
