Principles of Microeconomics: Externalities

Flashcards covering key terms and concepts related to externalities in microeconomics.

Externality

A cost or benefit arising from production or consumption activities that affects third parties not directly involved in the transaction.

Negative Externality

A production or consumption activity that creates an external cost on others.

Positive Externality

A production or consumption activity that creates an external benefit to others.

Marginal Private Cost

The cost of producing an additional unit of a good or service that is borne by the producer.

Marginal External Cost

The cost of producing an additional unit of a good or service that falls on individuals other than the producer.

Marginal Social Cost

The total cost incurred by society, combining both marginal private cost and marginal external cost.

Pollution Tax

A tax on polluting production that aims to equalize the marginal external cost with the tax to encourage firms to act as if they bear the externality cost.

Public Provision

The production of a good or service by a public authority funded mainly by government revenue.

Private Subsidies

Payments made by the government to private producers to cover a portion of their production costs.

Vouchers

Tokens provided by the government to households to purchase specified goods or services.