Market Failure and the Role of the Government Flashcards
laws that specify allowable quantities of pollution and that also may detail which
pollution-control technologies must be used
command-and-control regulation
a market exchange that affects a third party who is outside or “external” to the exchange; sometimes called a
“spillover”
externality
externalities that cross national borders and that cannot be resolved by a single nation acting alone
international externalities
When the market on its own does not allocate resources efficiently in a way that balances social costs and benefits, externalities are an example
market failure
a situation where a third party, outside the transaction, suffers from a market transaction by others
negative externality
when it is costly or impossible to exclude someone from using the good, and thus hard to charge for it
nonexcludable
even when one person uses the good, others can also use it
nonrivalrous
when the estimated rates of return go primarily to an individual; for example, earning interest on a savings account
private rates of return
good that is nonexcludable and nonrivalrous, and thus is difficult for market producers to sell to individual
consumers
public good
when the estimated rates of return go primarily to society; for example, providing free education
social rate of return
the dollar value of all benefits of a new product or process invented by a company that can be captured
by other firms and by society as a whole
social benefits
the situation in which groups of legislators all agree to vote for a package of otherwise unrelated laws that
they individually favor
logrolling
theory that politicians will try to match policies to what pleases the median voter preferences
median voter theory
spending that benefits mainly a single political district
pork-barrel spending
the theory that rational people will not vote if the costs of becoming informed and voting are too high or because they know their vote will not be decisive in the election
rational ignorance
