Chapter 5 Flashcards
Externality
benefit or a cost that affects a party that is not directly involved in the production or consumption of a good or service
Marginal Social Cost
marginal private cost + externality
Private Cost
cost borne by producers
Social Cost
private cost + external cost
Private Benefit
benefit received by consumers
Social Benefit
total benefit that society receives; private benefit + external benefit; ie college education
Market Failure
when market fails to produce the efficient level of output
Property Rights
the rights individuals or firms have to the exclusive use of their property
Coase Theorem
if property rights are enforceable, then a private solution can come about; private parties could solve externalities through private bargining
Subsidy
incentive provided to producers or consumers to encourage production or consumption
