Ch. 10 Externalities

Question 1

Externality

Answer 1

A side effect of an activity that affects bystanders whose interests aren’t taken into account

Question 2

Negative Externality

Answer 2

A side effect that harms bystanders

Question 3

Positive Externality

Answer 3

A side effect that benefits bystanders

Question 4

Private Interest

Answer 4

Costs and benefits you incur

Question 5

Societys Interest

Answer 5

All costs and benefits between you and others

Question 6

Marginal Private Cost

Answer 6

Extra cost the seller incurs to procure one more unit

Question 7

Marginal External Cost

Answer 7

Cost imposed on bystanders from producing one more unit

Question 8

Marginal Social Cost

Answer 8

All marginal costs = marginal private costs + marginal external costs

Question 9

Marginal Private Benefit

Answer 9

Extra benefit enjoyed by a buyer with one more unit

Question 10

Marginal External Benefit

Answer 10

External benefit given to bystanders from one more unit

Question 11

Marginal Social Benefit

Answer 11

All benefits = marginal private benefits + marginal external benefits

Question 12

Socially Optimal Quantity

Answer 12

Outcome that is most efficient for society as a whole

Question 13

Rational Rule for Society

Answer 13

Produce more of an item as long as its marginal social benefit is greater than or equal to marginal social cost

Question 14

Coase Theorem

Answer 14

If people can bargain costly and legal rights are clear, externality problems can be solved

Question 15

Corrective Tax

Answer 15

Tax designed to induce people to take account of the negative externalities they cause

Question 16

Cap and Trade

Answer 16

Quantity limit implemented by allocating a fixed number of permits, which can be traded

Question 17

Golden Rule

Answer 17

You should do unto others as you would like them to do unto you

Question 18

Non-excludable

Answer 18

When someone cannot daily be excluded from using something

Question 19

Non-rival

Answer 19

A good for which one persons use doesn’t subtract from another’s

Question 20

Free-rider Problem

Answer 20

When someone can enjoy the benefit of a good without bearing the costs

Question 21

Rival Good

Answer 21

A good for which your use of it comes at someone else’s expenses

Question 22

Public Good

Answer 22

A good that is non-excludable and hence subject to the free-rider problem

Question 23

Club Good

Answer 23

An excludable good, but non-rival in consumption

Question 24

Common Resources

Answer 24

A good that is rival and non-excludable

Question 25

Tragedy of the Commons

Answer 25

A tendency to over consume a common resource