ECON Flashcards
externalities
cost/benefit of a market activity that affects a 3rd party
market failure
condition occurring when there is an inefficient allocation of resources in a market
internal costs
the costs of a market activity paid only be an individual participant
external costs
the costs of a market imposed on people who are not participants in that market
social costs
the sum of the internal costs and external costs of a market activity
third-party problem
a situation in which those not directly involved in a market activity experience negative or positive externalities
social optimum
the price and quantity combination that would exist if there were no externalities
internalize
relating to a firm’s handling of externalities, to take into account the external costs (or benefits) to society that occur as a result of the firms actions
property rights
an owners ability to exercise control over a resource
private property
provision of an exclusive right of ownership that allows for the use, and especially the exchange, of property
coase theorem
theorem stating that if there are no barriers to negotiations, and if property rights are fully specified, interested parties will bargain to correct externalities
excludable goods
a good for which access can be limited to paying customers
rival good
a good that cannot be enjoyed by more than one person at a time
private good
a good with two characteristics: it is excludable and rival in consumption
public good
a good that can be consumed by more than one person, and from which nonpayers are difficult to exclude
free-rider problem
phenomenon occurring when someone receives a benefit without having to pay for it
club good
a good with two characteristics: it is nonrival in consumption and excludable
common-resource good
a good with two characteristics: it is a rival in consumption and nonexcludable
cost-benefit analysis
a process that economists use to determine whether the benefits of providing a public good outweigh the costs
tragedy of the commons
the depletion of a common-resource good
cap and trade
an approach used to curb pollution by creating a system of emissions permits that are traded in an open market
