Economics 2.8

Question 1

externalities

Answer 1

external costs/benefits to third parties when a good/service is produced or consumed. an externality arises when an economic activity imposes costs/creates benefits on third parties for which they are not compensated/they don’t pay for

Question 2

common pool resources

Answer 2

a diverse group of natural resources that are non-excludable, but their use is rivalrous, for example, fisheries

Question 3

socially optimum output

Answer 3

this occurs where there is allocative efficiency, or where the MSC of producing a good is equal to the MSB of the good to society. Alternatively, it occurs where the marginal cost of producing a good (including any external costs) is equal to the price that is charged to consumers (P = MC for the last unit produced)

Question 4

positive externalities of production

Answer 4

the beneficial effects that are enjoyed by third parties whose interests are not accounted for when a good/service is produced, therefore they do not pay for the benefits they receive

Question 5

positive externalities of consumption

Answer 5

the beneficial effects that are enjoyed by third parties whose interests are not accounted for a when a good/service is consumed, therefore they do not pay for the benefits they receive

Question 6

welfare loss

Answer 6

a loss of a part of social surplus (consumer plus producer surplus) that occurs when there is market failure so that MSB are not equal to MPB

Question 7

merit goods

Answer 7

goods/services considered to be beneficial for people that are under-provided by the market –> these are under-consumed, mainly due to positive consumption externalities

Question 8

negative externalities of production

Answer 8

negative effects suffered by a third party whose interests are not considered when a good/service is produced, so third party is NOT COMPENSATED

Question 9

negative externalities of consumption

Answer 9

negative effects suffered by a third party whose interests are not considered when a good/service is consumed, so the third party are therefore not compensated

Question 10

demerit goods

Answer 10

goods/services that not only harm individuals who consume these but also society at large, and these tend to be overconsumed. Usually they are due to negative consumption externalities.

Question 11

tragedy of commons

Answer 11

a situation with common pool resources: individual users act independently, according to their own self-interest; they go against the common good of all users by depleting or spoiling that resource through their collective action

Question 12

rivalrous

Answer 12

goods/services are considered to be rivalrous when the consumption by one person/group of people reduces the amount available for others

Question 13

non-excludable

Answer 13

a characteristic of a good/service/resource where it is IMPOSSIBLE to prevent a person/persons from using it

Question 14

pigouvian taxes

Answer 14

an indirect tax that is imposed to eliminate the external costs of production/consumption

Question 15

carbon taxes

Answer 15

taxes levied on the carbon content of fuel (type of pigouvian tax)

Question 16

tradeable permits

Answer 16

permits to pollute, issued by a governing body, that sets a maximum amount of pollution allowable. these permits may be traded (bought or sold) in a market for such permits

Question 17

collective self-governance

Answer 17

in the case of a common pool resource, such as a fishery, users solve the problem of overuse by devising rules concerning the obligations of the users, the monitoring of the use of the resource, penalities of abuse, and conflict resolution