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15 Cards in this Set
- Front
- Back
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negative externalities
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the action of one party imposes costs on another party
(e.g., a steel plant dumps its waste in a river that fishermen downstream depend on for their daily catch. The more waste the steel plant dumps in the river, the fewer fish will be supported) |
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positive externalities
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when the action of one party benefits another party
(e.g., a home owner repaints her house and plants an attractive garden. All the neighbors benefit from this activity, even though the moe owner's decision to repaint and landscape probably did not take these benefits into account.) |
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externality
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action by either a producer or consumer which affects other producers or consumers, but is not accounted for in the market price
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marginal external cost
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increase in cost imposed externally as one or more firms increase output by one unit.
(the curve for MEC is upward sloping for most forms of pollution. As the firm produces additional output and dumps additional effluent, the incremental harm to the fish industry increases) |
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marginal social cost
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sum of the marginal cost of production and the marginal external cost.
MSC = MC + MEC |
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emissions standard
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legal limit on the amount of pollutants that a firm can emit.
(The standard is preferable when the marginal social cost curve is steep and the marginal abatement cost curve is relatively flat.) |
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emissions fee
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charge levied on each unit of a firm's emissions
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transferable emissions permits
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system of marketable permits allocated among firms, specifying the maximum level of emissions that can be generated.
(in market equilibrium, the price of a permit equals the marginal costs of abatement for all firms) |
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property rights
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legal rules stating what people or firms may do with their property
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coase theorem
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principle that when parties can bargain without cost and to their mutual advantage, the resulting outcome will be efficient regardless of how property rights are specified.
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common property resource
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resource to which anyone has access
(e.g. air, water, etc) |
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public good
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nonexclusive and nonrival good: the marginal cost of provision to an additional consumer is zero and people cannot be excluded from consuming it
(public goods can be nonrival and nonexclusive) |
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nonrival good
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good for which the marginal cost of its provision to an additional consumer is zero
(lighthouse, highway during non-peak hours) |
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nonexclusive good
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goods that people cannot be excluded from consuming, so that it is difficult or impossible to charge for their use.
(e.g., a national defense) |
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free rider
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consumer or producer who does not pay for a nonexclusive good in the expectation that others will.
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