Chapter 16 - Externalities Flashcards
(11 cards)
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
