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
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
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
4
Q
What is the Pigouvian Tax?
A
the tax necessary to incentivize a firm to produce the socially optimal level of output