Lecture 10/ Chapter 10

Question 1

Coase Theorem

Answer 1

The proposition that if private parties can bargain without cost over the allocation of resources, they can solve the problem of externalities on their own

Question 2

Externality

Answer 2

The uncompensated impact of one person’s actions on the well-being of a bystander

Question 3

Transaction Costs

Answer 3

The costs that parties incur in the process of agreeing to and following through on a bargain

Question 4

Corrective Taxes

Answer 4

A tax designed to induce private decision makers to take account of the social costs that arise from a negative externality

Question 5

Internalizing the Externality

Answer 5

Altering incentives so that people take account of the external effects of their actions