75: Externalities and Public Policy

Question 1

environmental standards

Answer 1

rules that protect the environment by specifying limits or actions for producers and consumers

Question 2

emissions tax

Answer 2

taxes that depend on the amount of pollution a firm produces, thus allocating most of the reduction to the firms with the lowest cost of reduction

Question 3

pigouvian taxes

Answer 3

taxes designed to reduce external costs

Question 4

tradable emissions permits

Answer 4

licenses to emit limited quantities of pollutants that can be bought and sold by polluters
–> those who can easily reduce emissions will sell some of their permits to those who find it more difficult

Question 5

cap and trade programs

Answer 5

creates a market for the right to produce

Question 6

marginal external benefit

Answer 6

difference between MBconsumer and MBsociety

Question 7

pigouvian subsidy

Answer 7

payment designed to encourage activities that yield external benefits

Question 8

technology spillover

Answer 8

external benefit that results when knowledge spreads among individuals and firms

Question 9

marginal external cost

Answer 9

difference between MSC and MPC

Question 10

network externality

Answer 10

when the value of a good to an individual is greater when other people use it

Question 11

congestion

Answer 11

negative network externality