chapter 9

Question 1

Pecuniary externality

Answer 1

When a market exchange affects other people through market prices causing (negative externality)

do not create mark inefficiencies

Question 2

pecuniary externality Example

Answer 2

buying an iphone market demand will shift rightward, increasing price.

Question 3

internalizing the externality

Answer 3

when agent account for the full cost and benefits of their actions

Question 4

positive externalities

Answer 4

free markets produce and consume too little

Question 5

Coase Theorem

Answer 5

States that private bargaining will result in an efficient allocation of resources

not necessary to solve externality problems - private bargaining can do the job

number of agents on each side of the bargaining table matters

ex: the plant has the right to pollute or the 100,000 fishermen have the right to clean water, end result will be the efficient amount if water quality.

Question 6

property right

Answer 6

gives someone ownership of a property or resources

Question 7

transaction costs

Answer 7

are the costs of making an economic exchange; legal fees and your time

negotiate economically is critically important

Question 8

private solution

Answer 8

Command and control - direct regulation

Market based policies - provide incentives

Question 9

What if private solutions do not work?

Answer 9

solutions take the form of rules that restrict production in some form, taxation, or requiring permits for production.

government solutions are externalities

Question 10

command-and-control regulation

Answer 10

either directly restricts the levels of production or mandates the use of certain technologies.

Q market > Q optimal

Question 11

market-based regulatory approach

Answer 11

internalizes externalities by harnessing the power of market forces
deals with externalities with corrective taxes and subsidies

another alternative than command-and-control regulation

EX: the method to fix issue is left to the agent who caused the issue

Question 12

Pigouvian Subsidy or pigouvian tax

Answer 12

Subsidy necessary to make an economic agent who makes positive externalities increase consumption to the socially optimal level
E.x. - Scholarships

Question 13

pigouvian tax or a corrective tax

Answer 13

Tax necessary to incentivize a firm to produce negative externalities, that socially optimal level of output
Also work on individuals

Question 14

Non Excludable Goods

Answer 14

Can be consumed, even if they are not paid for
public goods
Ex: Water

Question 15

Excludable Goods

Answer 15

Must be paid for in order to consume them
private good
Ex: Technically Netflix

Question 16

Nonrival Good

Answer 16

Goods that more than one person can consume at a time
public good
Ex: Netflix

Question 17

Rival Good

Answer 17

Goods that only one person can consume at a time.
private good
Ex: An Apple

Question 18

public good

Answer 18

non rival and non excludable in consumption

ex: national defense

Question 19

club good

Answer 19

non rival but excludable

ex: cable tv, wifi

Question 20

private good

Answer 20

excludable and rival

ex: clothes, food

Question 21

common pool resource good

Answer 21

are a class of goods that are rival and non excludable
ex: fish, water, natural forest

Question 22

Free Rider Problem

Answer 22

When an individual does not pay for a good because it is non-excludable

Question 23

private provision of public goods

Answer 23

takes place when private citizens make contributions to the production or maintenance of public goods
ALSO
Money may not go to the areas of most critical need
Too Variable
When economy is downturn (needed the most), giving decreases

Question 24

Tragedy of the commons

Answer 24

When common pool resources are overused

Solutions to tragedy of the commons:
Private ownership (defined by the government)
Government regulation (EX: fishing limits)
Tax on use