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9 Cards in this Set

  • Front
  • Back
The uncompensated impact of one persons actions on the well being of a bystander
Internalizing the externalities
Altering incentives so that people take account of the external effects of their actions
Coase Theorem
The proposition that if private parties can bargain without cost over the allocation of resources, they can solve the problem of externalities on their own
Transaction Cost
The costs that parties incur in the process of agreeing to and following through on a bargain
Corrective Tax
A tax designed to induce private decision makers to take account of the social costs that arise from a negative externality
What Quantity of aluminum should be produced by benevolent social planner?
Planner wants to maximize the total surplus derived from the market- the value to consumers of aluminum minus the cost of producing aluminum. The cost of producing aluminum includes the external costs of the pollution. The planner would choose the level of aluminum production at which the demand curve crosses the social-cost curve (private and external cost). The intersection determines the optimal amount of aluminum from the standpoint of society as a whole.
To remedy the problem of negative and positive externalities, the government....
can internalize the externality by taxing goods that have negative externalities and subsiding goods that have positive externalities
Technology Spillover
The impact of one firms research and production efforts on other firms research and production efforts on other firms' access to technological advance (a potentially important type of positive externality)
Industrial Policy
Government intervention in the economy that aims to promote technology-enhancing industries