Chapter 7 Flashcards
(19 cards)
Externalities
The costs or benefits of a market activity that affect a third party.
Market Failure
Occurs when there is an inefficient allocation of resources in a market.
Internal Costs
The costs of a market activity paid only by an individual participant
External Costs
The costs of market activity imposed on people who are not participants in that market.
Social Costs
The sum of the internal costs and external costs of an activity
Third-party problem
Occurs when those not directly involved in a market activity experience negative or positive externalizes.
Social Optimum
The price and quantity combination that would exist if there is no externalizes.
Internalize
An externality when it takes into account the external costs or benefits to society that occur as a result of its actions.
Property Rights
Give the owner the ability to exercise control over a resource.
Private Property
Provides an exclusive right of ownership that allows for the use, and especially the exchange, of property.
Coase theorem
States that if there are no barriers to negotiations, and if property rights are fully specified, interested parties will bargain to correct externalities.
Private good
Has two characteristics; it is excludable and rival in consumption.
Public Good
Can be jointly consumed by more than one person, and nonpayers are difficult to exclude.
Free rider problem
Occurs when someone receives a benefits without having to pay for it.
Club good
Has two characteristics; it is nonrival in consumption and excludable.
Common-resource good
Has two characteristics; it is rival in consumption and nonexcludable.
Cost-benefits analysis
Is a process that economists use to determine whether the benefits of providing a public good outweigh the costs.
Tragedy of the commons
Occurs when a good that is rival in consumption but nonexcludable becomes depleted.
Cap and trade
Is an approach used to curb pollution by creating pollution by creating a system of emissions permits that are traded in a open market
