Chapter 5 Flashcards
Externality
A benefit or cost that affects someone that is not directly involved
Private cost
The cost borne by the producer
Social cost
The total cost of producing a good
Private benefit
The benefit received by the consumer of a good
Social benefit
The total benefit from consuming a good
Market failure
When the market fails to produce efficiency
Transaction costs
Costs that incur in the process of agreeing to and carrying out an exchange of goods
Coase theorem
If transactions costs are low, private bargaining will result in an efficient solution to the problem of externalities
Pigovian taxes and subsidies
Government taxes and subsidies that brings out efficient level of output
Private good
Rival, excludable
Public good
non-rival, nonexcludable
Quasi-public good
non-rival, excludable
Common resource
rival, nonexcludable
