Externalities Flashcards
1
Q
Externalities
A
An externality is a cost or a benefit imposed upon someone by actions taken by others
2
Q
A commodity is purely public if…
A
it is consumed by everyone (nonexcludabe)
everybody consumes the entire amount of the commodity (nonrivalry in consumption)
3
Q
Internalising the externality
A
Causing a producer of an externality to bear the full external cost or to enjoy the full external benefit is called internalising the externality
4
Q
Coase’s Theorem
A
If all agents’ preferences are quasilinear in money, then the efficient level of the externality generating commodity is produced no matter which agent is assigned the property right
