Chapter 5: Externalities, Environmental 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 or service
private cost
the cost borne by the producer of a good or service
social cost
the total cost of producing a good or service, including both the private cost and any external cost
private benefit
the benefit received by the consumer of a good or service
social benefit
the total benefit from consuming a good or service, including both the private benefit and any external benefit
market failure
a situation in which the market fails to produce the efficient level of output
property rights
the rights individuals or businesses have to the exclusive use of their property, including the right to buy or sell it
transactions costs
the costs in time and other resources that parties incur in the process of agreeing to and carrying out an exchange of goods or services
Coase theorem
the argument of economist Ronald Coase that if transactions costs are low, private bargaining will result in an efficient solution to the problem of externalities
Pigovian taxes and subsidies
government taxes and subsidies intended to bring about an efficient level of output in the presence of externalities
command-and-control approach
an approach that involves the government imposing quantitative limits on the amount of pollution firms are allowed to emit or requiring firms to install specific pollution control devices
rivalry
the situation that occurs when one person’s consuming a unit of a good means no one else can consume it
excludability
the situation in which anyone who does not pay for a good cannot consume it
private good
a good that is both rival and excludable
public good
a good that is both nonrival and nonexcludable
