Chapter 7: Market Inefficiencies

Question 1

Cap and trade

Answer 1

a method to curb pollution by creating a system of emission permits that are traded in an open market p234

Question 2

Club good

Answer 2

is non-rival in consumption and excludable. Ex) Satellite tv p229

Question 3

Coase theorem

Answer 3

if there are no barriers to negotiations, and if property rights are fully specified, interested parties will bargain to correct externalities p226

Question 4

common-resource good is

Answer 4

rival in consumption and non-excludable (like fishing) p226

Question 5

cost benefit analysis

Answer 5

a process that economist use to determine if the benefits of providing a public good outweigh the costs p231

Question 6

excludable good

Answer 6

when it is possible to prevent consumer who have not paid for it from having access to it. p226

Question 7

external costs

Answer 7

The side effects of market activity imposed on a third party (externalities like polution) p216

Question 8

externalities

Answer 8

An effect on a third party that is caused by the consumption or production of a good/service. p216

Question 9

free rider problem

Answer 9

whenever someone receives a benefit without having to pay for it p227

Question 10

internal costs

Answer 10

the costs of a market activity paid only by an individual participant p216

Question 11

internalize

Answer 11

to take in an externality (side effect) when it takes into account the external costs (or benefit) to society inflicted by ones actions p219

Question 12

market failure

Answer 12

when there is an inefficient allocation of resources in a market p216

Question 13

private good

Answer 13

Is excludable and rival in consumption p227

Question 14

private property

Answer 14

gives exclusive rights to ownership that allows for the use and especially the exchange of property. p224

Question 15

public good

Answer 15

can be jointly consumed by more than one person, and non-payers are difficult to exclude p227

Question 16

rival good

Answer 16

one person using the good, impairs (prevent) another from using (benefit from) it p226

Question 17

social costs

Answer 17

sum of internal costs and external costs of a market activity p216

Question 18

social optimum

Answer 18

the price and quantity combination that would exist if there were no externalities p218

Question 19

third party problem

Answer 19

when those not directly involved in a market activity experience negative or positive externalities p217

Question 20

tragedy of the commons

Answer 20

occurs when a good that is rival in consumption but non-excludable becomes depleted. Ex) overfishing p232

Question 21

property rights

Answer 21

give the owner the ability to excerise control over a resource p224