Chapter 7: Market Inefficiencies Flashcards
Cap and trade
a method to curb pollution by creating a system of emission permits that are traded in an open market p234
Club good
is non-rival in consumption and excludable. Ex) Satellite tv p229
Coase theorem
if there are no barriers to negotiations, and if property rights are fully specified, interested parties will bargain to correct externalities p226
common-resource good is
rival in consumption and non-excludable (like fishing) p226
cost benefit analysis
a process that economist use to determine if the benefits of providing a public good outweigh the costs p231
excludable good
when it is possible to prevent consumer who have not paid for it from having access to it. p226
external costs
The side effects of market activity imposed on a third party (externalities like polution) p216
externalities
An effect on a third party that is caused by the consumption or production of a good/service. p216
free rider problem
whenever someone receives a benefit without having to pay for it p227
internal costs
the costs of a market activity paid only by an individual participant p216
internalize
to take in an externality (side effect) when it takes into account the external costs (or benefit) to society inflicted by ones actions p219
market failure
when there is an inefficient allocation of resources in a market p216
private good
Is excludable and rival in consumption p227
private property
gives exclusive rights to ownership that allows for the use and especially the exchange of property. p224
public good
can be jointly consumed by more than one person, and non-payers are difficult to exclude p227
rival good
one person using the good, impairs (prevent) another from using (benefit from) it p226
social costs
sum of internal costs and external costs of a market activity p216
social optimum
the price and quantity combination that would exist if there were no externalities p218
third party problem
when those not directly involved in a market activity experience negative or positive externalities p217
tragedy of the commons
occurs when a good that is rival in consumption but non-excludable becomes depleted. Ex) overfishing p232
property rights
give the owner the ability to excerise control over a resource p224
