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33 Cards in this Set
- Front
- Back
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externality |
a benefit or cost that directs someone who is not directly involved for the consumption of a good or service |
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social cost |
the cost to society that includes both the private cost and social cost of pollution |
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q efficient |
the optimal level of production for a society |
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when there is a neg externality in producing a good or service too much of the good or service will be produced at market equilbrium |
Ex: pollution |
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examples of positive externality |
when social benefits exceed private benefits college education |
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private benefit |
the benefit received by the consumer of a good or service |
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social benefit |
the total benefit from consuming a good or service incl both private and any external benefit |
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pos externalities result in underproduction relative to efficiency |
TRUE |
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market failure |
a situation in which the market fails to produce the efficient level of output |
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what causes externalities |
incomplete property rights or difficulty enforcing property rights |
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property rights |
the rights individuals or businesses have to the exclusive use of their property including the right to buy or sell it - helps avoid market failure |
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total benefits |
sum of the area under the marginal curve |
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coase theorem |
private properties could solve the externality problem through private bargaining provided property rights are enforced and transactions are low - parties need to have good info about costs and benefits involved |
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transaction cost |
the cost in time and other resources that parties incur in the process of agreeing to and carrying out an exchange of a good or service |
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what will help correct neg externalities |
taxes |
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what will help correct pos externalities |
subsidies |
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subsidies |
an amount paid to producers and consumers to encourage the production or consumption of a good |
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pigovian taxes and subsidies |
taxes and subsides hat correct the externality problem - increase efficiency while bringing in tax revenue |
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command and control |
- solution to the externality problem - involves the govt imposing quantitative limits on the amount of pollution firms are allowed to emit |
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cap and trade |
-govt establishes an allowable amount of transmission - emissions permits are distributed -firms can trade emission permits |
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what are the 4 categories of goods |
rival, non rival, excludable and nonexcludable |
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rivalry |
one person consuming a good means no one can consume it |
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excludability |
if you do not pay for a good you cant consume it |
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rival and excludable |
big mac, running shoes |
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rival and nonexcludable |
tuna in the ocean, public pasture land |
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nonrival and excludable |
cable tv |
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nonrival and nonexcludable |
national defense, court system |
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free-ride |
enjoying the benefits of a good without actually paying for them |
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how is the market demand curve obatined |
by adding horizontally the quantity of the good demanded at each price by each consumer |
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tragedy of the commons |
common resource is overused |
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solution to the tragedy of the commons |
restrict access, legal restriction through taxes and trad-able permits |
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pollution should be created until its net benefit is 0 |
TRUE |
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neg externalities raise the social cost of a good |
true |
