Microeconomics - Hubbard & O'Brien CH. 5

Externality

A benefit or cost that affects someone who is not directly involved in production or consuming a good or service

Private Cost

The cost borne by the producer of a good or service. Just the regular cost of producing a regular good

Social Cost

The total cost of producing a good or service including both the private cost and external cost

Private Benefit

The benefit received by the consumer of a good or service

Social Benefit

The total benefit from consuming a good or service including the private benefit and external benefit

Market Failure

A situation in which the market fails to be efficient

Property Rights

The rights individuals have to the exclusive use of their property

Transaction Cost

The cost in time and other resources that parties incur in the process in agreeing to and carrying out an exchange of good or services

Coase Theorem

If transactions costs are low, private bargaining will result in an efficient solution to the problem of externalizes

Pigovian Taxes & Subsidies

Government taxes and subsidies intended to bring out an efficient level of output in the presence of externalities

Command & Control Approach

A policy that involves the government imposing quantitive limits on the amount of pollution firms are allowed to emit or requiring firms to install specific pollution control devices

Rivalry

A situation that occurs when one persons consumption of a unit of a good means no one else can consume that unit

Excludability

The situation in which anyone who does not pay for a good can not consume it

Private Good

A good that is both rival and excludable

Public Good

A good that is both nontrivial and non excluded

Free-Riding

Benefit of a good without paying for it

Common Resource

A good that is rival but not excludable. Ex: Cutting down a tree in a forest that has no property rights

Tragedy of the Commons

The tendency for a common resource to be overused