Chapter 7 - Externalities Flashcards

1
Q

What is….

  • An externaility?
  • a negative externalitiy?
  • a positive externality?
A
  • an externality is an uncomoensated impact of one person´s actions on the well-being of a bystander
  • a negative externality the the costs imposed on a third party of a decision
  • a positive externality are the benefits to a third party of a decision
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2
Q

What is Coase theorem?

A
  • states that private bargaining (privates handeln) will result in an efficient allocation of resources, as long as there are no (little) costs involved when bargaining
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3
Q

What if private solutions do not work?

1.
2.

A

Government solutions are:

  • command-and-control - direct regulation
  • market-based-policies - provide incentives
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4
Q

What is the Pigouvian Tax?

A

the tax necessary to incentivize a firm to produce the socially optimal level of output

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