Chapter 30 Definitions

Question 1

Private Costs

Answer 1

Costs borne solely by the individuals who incur them. Also known as internal costs

Question 2

Social Costs

Answer 2

The full costs borne by society whenever a resource use occurs. Social costs can be measured by adding external costs to private or internal costs

Question 3

Externality

Answer 3

consequence of a diversion of a private cost (or benefit) from a social cost (or benefit). A situation in which the costs or benefits of an action are not fully borne (or gained) by the decision makers engaged in an activity that uses scarce resources

Question 4

Optimal quantity of pollution

Answer 4

The level of pollution for which the marginal benefit of one additional unit of pollution abatement just equals the marginal cost of that additional unit of pollution

Question 5

Private property rights

Answer 5

Exclusive rights of ownership that allow the use, transfer, and exchange of property

Question 6

Common property

Answer 6

Property that is owned by everyone and therefore by no one. Air and water are examples of common property resources

Question 7

Transaction costs

Answer 7

All costs associated with making, reaching, and enforcing agreements

Question 8

Distribution of income

Answer 8

The way income is allocated among the population based on groupings of residents