Flashcards in M icro Part II Deck (9)
the uncompensated impact of one person’s actions
on the well-being of a bystander.
Externalities cause ___
markets to be inefficient, and thus fail to maximize total
An externality arises when
a person engages in an activity that influences the well-being of a bystander and yet neither pays nor receives any compensation for that effect.
negative externality occurs when ____
lead markets to produce __
When the impact on the bystander is adverse.
Negative externalities lead markets to produce a larger quantity than is
positive externality occurs when ____
lead markets to produce__
When the impact on the bystander is beneficial.
Positive externalities lead markets to produce a smaller quantity than is
the social cost includes
the private costs of the producers plus the cost to those bystanders adversely
affected by the pollution
optimal output level
The intersection of the demand curve and the social-cost curve
Internalizing an externality involves ____
Internalizing an externality involves altering incentives so that people take
account of the external effects of their actions