Chapter 8 Flashcards
A benefit or cost from consumption or production that spills over onto those who are not consuming or producing the good
Externality
When benefits spill over to an outside party who is not involved in producing or consuming the good
Positive externality
When costs spill over to an outside party who is not involved in producing or consuming the good
Negative externality
Changing incentives so people will take into account the effects of the external costs or benefits imposed on, or enjoyed by, others
Internalizing externalities
A right given to a firm to discharge a specified amount of pollution; its transferable nature creates incentive to lower pollution levels
Transferable pollution rights
Where property rights are defined in a clear-cut fashion, and externalities are internalized if transaction costs are low
Chase theorem
A good that is non-rivalrous in consumption and non-excludable
Public good
A good with rivalrous consumption and excludability
Private good
Deriving benefits from something not paid for
Free rider
A good that is rival in consumption and non-excludable
Common resource
When the available information is initially distributed in favor of one party relative to another in an exchange
Asymmetric information
A situation where an informed party benefits in an exchange by taking advantage of knowing more than the other party
Adverse selection
Taking additional risks because you are insured, thus lowering the cost to you of taking those risks
Moral hazard
