Chapter 5: Externalities, Environemental Policy, And Public Goods Flashcards
Externality
A benefit or cost that affects someone who is not directly involved in the production or consumption of a good / service
Private cost
Cost borne by the producer of a good or service
Social cost
Total cost of producing a good / service and is equal to private coast plus any external cost
Private benefit
Benefit received by the consumer of a good
Social benefit
Total benefit from consuming a good and it is equal to the private benefit plus any external benefit
When there is a _____ externality in producing a good or service, _________ or the good or service will be produced at the _______ equilibrium
Negative
Too much
Market
When there is a _____ externality in consuming a good or service, _______ of the good or service will be produced at ________ equilibrium
Positive
Too little
Market
Property rights
Rights that Individuals or businesses have to the exclusive use of their property, including the right to buy or sell
Externalities and market failures result from __________ or from the difficulty of enforcing ________ in certain situations
Incomplete property rights
Property rights
To maximize the net benefit to society, pollution should be ______ up to the point where the _______ from another tonne of reduction is equal to the __________
Reduced
Marginal benefit
Marginal cost
If the marginal benefit of reducing sulphur dioxide emissions is _____ than the marginal cost, further reductions will make society ________
Greater
Better off
If the marginal cost of reducing sulphur dioxide emissions is ______ than the marginal benefit, reducing sulphur dioxide emmission will make society ________
Greater
Worse off
Transaction costs
The cost in time and other resources that parties incur in the process of agreeing to and carrying out an exchange of goods/services
Coase Theorem
If transactions cost are low, private bargaining will result in an efficient solution to problem of externalities
Command and control approach
Government imposing quantitative limits on the amount of pollution firms are allowed to generate, or requiring firms to instal specific pulllution control devices
Rivalry
Occurs when one persons consuming a unit of a good means no one else can consume it
You consume a whole burger, no one else can have it
Excludability
Anyone who does not pay for a good cannot consume it
If you don’t buy a big Mac, Mcdoanlds can exclude you from consuming one
Nonrival
One persons consumption does not interfere with another person’s consumption
Non-excludable
It is Impossible me to exclude others from consuming the good , whether paid for or not
Private goods
Both rival and excludable
Food, haircuts, clothing
You must buy these, one person buying this good makes it so another person can’t
Public good
Nonrival and nonexludable
Supplied by government, such as national defence
Free riding
Involved individuals benefiting from a good without paying for it
Quasi public goods
Excludable but not rival
Cable tv
People who don’t buy cable tv don’t receive it, but it doesn’t effect someone who does have it
Common resources
Rival but not excludable
Forest land
One person cuts down a tree, no one else can use the tree
But everyone can use the forest
