Chapter 5 Flashcards
(18 cards)
Coase theorem
The argument of economist Ronald Coase that if transactions costs are low, private bargaining will result in an efficient solution to the problem of externalities.
Command-and-control approach
A policy that involves the government imposing quantitative limits on the amount of pollution firms are allowed to emit or requiring firms to install specific pollution control devices.
Common resource
A good that is rival but excludable
Excludability
The situation in which anyone who does not pay for a good cannot consume it.
Externality
A benefit or cost that affects someone who is not directly involved in the production or consumption of a good or service.
Free riding
Benefiting from a good without paying for it
Market failure
A situation in which the market fails to produce the efficient level of output
Pigovian taxes and subsidies
Government taxes and subsidies intended to bring about an efficient level of output in the presence of externalities.
Private benefit
The benefit received by the consumer of a good or service.
Private cost
The cost borne by the producer of a good or service
Private good
A good that is both rival and excludable
Property rights
The rights individuals or businesses have to the exclusive use of their property, including the right to buy or sell it.
Public good
A good that is both nonrival and nonexcludable
Rivalry
The situation that occurs when one person’s consumption of a unit of a good means no one else can consume it
Social benefit
The total benefit from consuming a good or service, including both the private benefit and any external benefit
Social cost
The total cost of producing a good or service, including both the private cost and any external cost
Tragedy of the commons
The tendency for a common resource to be overused
Transactions costs
The costs in time and other resources that parties incur in the process of agreeing to and carrying out an exchange of goods or services.
