Market Failure: Externalities & Common Pool Resources Flashcards
Define extenality.
When production or consumption of a good generates effects on the third party.
When is the economy working at socially optimal in this topic?
MSC = MSB
Define common pool resources.
Resources that are non-excludable but rivalrous in consumption.
Define non-excludable.
Anyone can access these resources without having to pay for them.
Define rivalrous.
The resources can be used up.
What is the tragedy of commons?
It occurs when common pool resources are used in production in an unsustainable way.
What are some common types of government intervention to solve market failure (other than the ones in the deck before)?
Collective self-governance
Tradable permits
Education
Carbon taxes
What is collective self-governance?
Occurs when communities come together to take control of common pool resources .
What are tradable permits?
A system where companies buy and sell licenses to pollute, under a government-set limit on total emissions.
What are carbon taxes?
A fee charged on the burning of fossil fuels based on the amount of carbon dioxide (CO₂) they emit.
What are disadvantages of collective self-governance?
Disagreements on how to manage resources.
Taking back control from big firms is very hard.
