Externalities

Question 1

Social costs

Answer 1

Costs of production that include both input costs and costs of the externalities that production may cause

Question 2

Coase theorem

Answer 2

If bargaining is cost less the social cost of an externality will be taken into account by the parties and the allocation of resources will be the same no matter how property rights are allocated

Question 3

Pigovian tax

Answer 3

Tax/subsidy on an externality that brings about an equality of private and social MC

Question 4

Lindahl equilibrium

Answer 4

Balance between peoples demand for the public Gs and the tax shares that each must pay for the,

Question 5

Coarse theorem

Answer 5

Private negotiations between the parties may result in an efficient allocation regardless of how property rights are assigned

Question 6

Public goods

Answer 6

Problem for private markets as people won’t freely choose to purchase public Gs in economically efficient amounts

Resources might be under allocates to public Gs

Question 7

Externality

Answer 7

The effect of 1 party’s economic activities on another party that isn’t taken into account by the P system