Topic 09 Externalities

Question 1

market interactions

Answer 1

agreements (trades, agreements)

Question 2

non-market interactions

Answer 2

forced interactions

Question 3

pigouvian approach

Answer 3

manipulating incentives (taxes etc)
size of tax= size of externality cost

Question 4

coasian approach

Answer 4

property rights, charge a fair price and negotiate to accommodate for any negative externality a party may experience (a price on happiness in order to keep everyone happy)

Question 5

cap and trade

Answer 5

uses a quota, allows trade in those permits

Question 6

pure public good

Answer 6

non-rivalrous
non-excludable
lighthouse, national defence

Question 7

congestible common property

Answer 7

non-excludable but there’s some rivalry and is congestible
parks

Question 8

club goods

Answer 8

non-pure public goods, somewhat excludable
public roads

Question 9

adverse selection

Answer 9

unknown quality seller knows, buyers don’t

Question 10

incentive capability

Answer 10

truth telling
you need incentive in a contract eg with communism, there’s no incentive to lower cost