Test 4 - Definitions & Application Flashcards
Externalities
a market exchange that affects a third party who is outside or “external” to the exchange; sometimes called a “spillover”, an unintended effect/consequence
What are examples of negative externalities?
Production creating pollution,
New arena creating traffic,
Hospitals creating MRSA,
Asking Q in class making class go over
What are examples of positive externalities?
Education benefitting entire community,
New tech proliferating to new areas/uses
How should negative externalities be addressed?
Fines, fees, & permits to discourage behavior. AKA Pigouvian tax.
(e.g. charging for plastic bags at grocery stores)
How should negative externalities be addressed?
Subsidizing
Coase Theorem
If people communicate, the market can solve it
Rival
If you consume something, there is less for the rest of us
Excludable
The ability to prevent people from enjoying a good/service
What type of good is rival and excludable?
Private goods
What type of good is rival and not excludable?
Common resources
What type of good is not rival and excludable?
Club goods or natural monopoly
What type of good is not rival and not excludable?
Public goods
National defense, public parks, and the interstate are examples of what kind of good?
Public goods
What is a problem with public goods?
free riders; everyone gets the benefit whether you believe they should or not.
(is that an issue lol?)
Quasi-public goods
Originate as private goods but result in many positive externalities, so they become public
Public libraries, museums, and schools are examples of what good?
Quasi-public goods
Internet, cable, electric/water utilities are examples of what good?
Natural monopoly (excludable but not rival)
Fish in the ocean and school food pantries are examples of what good?
Common resources
Common resources are at risk of what?
Tragedy of the commons
What is the distribution of wealth between the top & bottom 20% of households in the U.S.?
The bottom 20% own 3.4% of income. The top 20% earn 51-2% of income.
Lorenz curve
Graph comparing actual wealth distribution to equal distribution at 45* line.
Gini coefficient
Degree of wealth inequality; size of deviation caused by lorenz curve
