Chapter 3 Flashcards
marginal cost
the cost of producing or consuming one more unit of a good or service
marginal benefit
the benefit of producing or consuming one more unit of a good or service
equilibrium price
the market price where the quantity supplied equals the quantity demanded
economic efficiency
an allocation of resources that maximizes net social benefits
internalizing external costs
using approaches such as taxation to incorporate external costs into market decision
external cost
a cost, not necessarily monetary, that is not reflected in a market transaction
social marginal cost curve
the cost curve providing one more unit of a g/s, considering both private production costs and externalities
socially efficient
a market situation in which net social benefits are maximized
Pigovian tax
a per-unit tax set equal to the external damage caused by an activity, such as a tax per ton of pollution emitted equal to the external damage of a ton of pollution
polluter pays principle
the view that those responsible for pollution should pay for the associated external costs, such as health costs and damage to wildlife habitats
upstream tax
a tax implementation as near as possible to the point of natural resource extraction
elasticity of demand or supply
the sensitivity of quantity demanded/supplied to prices
subsidies
government assistance to an industry or economic activity; can be direct (financial assistance) or indirect (protective policies)
welfare analysis
an economic tool that analyzes the total cost and benefits of alternative policies to different groups, such as producers and consumers
optimal level of pollution
the pollution level that maximizes net social benefits
