Chapter 17-18 Pindyck Flashcards
A situation in which the
market does not provide the
ideal or optimal amount of
a good.
market failure
A side effect of an action
that affects the well-being of
third parties.
externality
The condition in which a
person’s or group’s actions
impose a cost (an adverse
side effect) on others.
negative externality
The condition in which a
person’s or group’s actions
create a benefit (a beneficial
side effect) for others
positive exterality
sum of marginal private costs and marginal external costs
marginal social costs
sum of marginal private benefit and marginal external benefit
marginal social benefit
the amount at which MSB M 5 SC. Sometimes referred to as the efficient amount.
socially optimal amount
T or false: A tax adjusts for a negative externality; a subsidy adjusts for a positive externality
true
The proposition that private
negotiations between people
will lead to an efficient resolution of externalities, as long
as property rights are well
defined and transaction costs
are trivial or zero.
coarse theorem
Said of a good whose
consumption by one person
reduces its consumption by
others. (private good)
rivalrous in consumption
Said of a good whose
consumption by one person
does not reduce its consumption by others. (public good)
nonrivalrous in consumption
A characteristic of a good
whereby it is possible or
not prohibitively costly to
exclude someone from
receiving the benefits of
the good after it has been
produced.
ex. movie tickets
excludable
A characteristic of a good
whereby it is impossible
or prohibitively costly to
exclude someone from
receiving the benefits of
the good after it has been
produced.
ex. national defense
nonexcludable
Anyone who receives the
benefits of a good without
paying for it
free rider
Information that either the
buyer or the seller in a market exchange has and that the other does not have.
assymetric information
A phenomenon in which
the parties on one side of
the market have information not known to others
and self-select in a way that
adversely affects the parties on the other side of the
market.
adverse selection
A phenomenon in which
the parties on one side of
the market have information not known to others
and self-select in a way that
adversely affects the parties on the other side of the
market.
adverse selection
A condition that exists when
one party to a transaction
changes his or her behavior
in a way that is hidden from
and costly to the other party
moral hazard
A model suggesting that
candidates in a two-person
political race will attempt to
match the preferences of the median voter
median voter model
The state of not acquiring
information because the
costs of acquiring it are
greater than the benefits
rational ignorance
subsets of the general population that hold (usually) intense preferences
for or against a particular government service, activity, or policy
special interest groups
The exchange of votes to
gain support for legislation
logrolling
Actions of individuals and
groups who spend resources
to influence public policy in
the hope of redistributing
(transferring) income to themselves from others
rent seeking
