Module 4 - Key Words

Question 1

Consumer Surplus

Answer 1

The extra benefit consumers receive from buying a good or service, measured by what the individuals would have been willing to pay minus the amount that they actually paid. Measured as the area under the
demand curve but above the price paid.

Question 2

Producer Surplus

Answer 2

The extra benefit producers receive from selling a good or service, measured by the price the producer actually received minus the price the producer would have been willing to accept. Measured as the area above the marginal cost curve but below the price charged

Question 3

Social Surplus

Answer 3

The sum of consumer surplus and producer surplus. Also called economic surplus. Also calculated as Total Willingness To Pay less Costs.

Question 4

Willingness To Pay

Answer 4

WTP is the maximum amount of money a customer is willing to pay for a product or service. WTP rises with increases in quantity but at a decreasing rate. Measured as the area under the demand curve.

Question 5

Additional External Cost

Answer 5

Additional external costs are those incurred by third parties outside the production process when a unit of output is produced. Also known as an negative production externality. Water pollution from a mine site that forces downstream user to filter river water is an example.

Question 6

Biodiversity

Answer 6

Biodiversity is the full spectrum of animal and plant genetic material in a particular ecosystem

Question 7

Command-And-Control Regulation

Answer 7

Command-and-control regulation (C&C) are laws that specify allowable quantities of pollution and that also may detail which pollution-control technologies one must use. For instance, automobiles in Canada must have catalytic converters to clean exhaust fumes.

Question 8

Externality

Answer 8

An externality is a market exchange that affects a third party who is outside or “external” to the exchange. This is sometimes called a “spillover” though spillover is a much broader term.

Question 9

International Externalities

Answer 9

International externalities are impacts on third parties who do not live in the country where the market exchange takes place. Since these externalities cross national border, a single nation acting alone cannot
resolve it. Global greenhouse gases that warm the climate is the classic international externality

Question 10

Market Failure

Answer 10

A market failure occurs when the market, on its own, does not allocate resources efficiently in a way that balances social costs and benefits. The presence of externalities can create a market failure.

Question 11

Marketable Permit Program

Answer 11

Marketable permit programs allow a firm to emit a certain amount of pollution but only if they have a permit to do so. Firms with
more permits than pollution can sell the remaining permits to other firms. The US uses this system to control SO2 emissions.

Question 12

Negative Externality

Answer 12

A negative externality is a situation where a third party, outside the market transaction, suffers from a market transaction by thers. An example is the sale of gasoline to cars owners. The petrol dealer and the car buyer engage in exchange but we all must bear the cost of additional CO2 in the tmosphere

Question 13

Pollution Charge

Answer 13

A pollution charge is a tax imposed on the quantity of pollution that a firm emits. The federal Carbon Tax is a pollution charge

Question 14

Positive Externality

Answer 14

A positive externality is a situation where a third party, outside the transaction, benefits from a market transaction by others. An example is the beauty from a garden that can be seen by a passersby. The omeowner
purchases flowers from a greenhouse but strangers can also benefit from the transaction.

Question 15

Property Rights

Answer 15

Property rights are the legal rights of ownership on which others are not
allowed to infringe without paying compensation

Question 16

Social Costs

Answer 16

Social costs include both the direct private costs incurred by firms and also additional costs incurred by third parties outside the production process. It measures the total cost to all members of society. Negative externalities would increase social costs while positive externalities would lower social costs.

Question 17

External Benefits

Answer 17

External benefits are beneficial spillovers to a third party, who did not purchase the good or service that provided the externalities. An example is a garden. It provides benefits to the home owner but also to their neighbors

Question 18

Intellectual Property

Answer 18

intellectual property is the body of law including patents, trademarks, copyrights, and trade secret law that protect the right of inventors to produce and sell their inventions.

Question 19

Positive Externalities

Answer 19

Beneficial spillovers to a third party or parties that result from a market transaction

Question 20

Private Benefits

Answer 20

Private benefits are those benefits a person who consumes a good or service receives. It can also refer to profits for a firm

Question 21

Private Rates of Return

Answer 21

Private rates of return occur when the estimated rates of return go primarily to an individual; for example, earning interest on a savings account. Alternately, the increased lifetime earning from university
education provide a positive, and high, private rates of return

Question 22

Social Benefits

Answer 22

Social benefits is the sum of private benefits and external benefits

Question 23

Social Rate of Return

Answer 23

The social rate of return is when the estimated rates of return go primarily to society. Primary education has a high social rate of return