Flashcards in M icro Part II Deck (9)
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1
externality
the uncompensated impact of one person’s actions
on the well-being of a bystander.
2
Externalities cause ___
markets to be inefficient, and thus fail to maximize total
surplus.
3
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.
4
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
socially desirable.
5
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
socially desirable.
6
the social cost includes
the private costs of the producers plus the cost to those bystanders adversely
affected by the pollution
7
optimal output level
The intersection of the demand curve and the social-cost curve
8
Internalizing an externality involves ____
Internalizing an externality involves altering incentives so that people take
account of the external effects of their actions
9