Chapter 18- Externalities Flashcards
private costs
costs that fall directly on an economic decision-maker
external costs
costs imposed without compensation on someone other than the person who caused them
social cost
the entire cost of a decision, including both private costs and any external costs
private benefits
benefits that accrue directly to the decision-maker
external benefits
benefits that accrue without compensation to someone other than the person who caused it
social benefit
the entire benefits of a decision, including both private benefits and external benefits
externality
a cost or benefit imposed without compensation on someone other than the person who caused it
network externality
the effect that an additional user of a good/participant in an activity has on the value of that good/activity for others
production externality
an externality that occurs when a good or service is being produced
consumption externality
an externality that occurs when a good or service is being consumed
Coase theorem
the idea that even in the presence of an externality, individuals can reach an efficient equilibrium through private trade, assuming zero transaction costs
Pigovian tax
a tax meant to counterbalance a negative externality
tradable allowance
a production or consumption quota that can be bought and sold
