Chapter 7 - Externalities

Externality

An effect of market activity which impacts third parties, or people not directly involved in the economic transaction. The effect can be positive or negative

Infrastructure

physical capital which is essential for the smooth running of an economy. Infrastructure includes bridges, ports, telecommunication and transportation systems, etc.

Market Failure

When the market isn’t in a state of allocative efficiency. This means MSB is not equal to MSC, and deadweight loss is present

Merit good

a good with positive externalities associated with it, for example education and fresh fruit

technological spillover

the beneficial effects of new technological knowledge on the productivity and innovative ability of other firms and countries

3rd party / bystander

someone affected by market activities despite not being directly involved in the economic transaction

Cap and trade scheme

Tariff

Carbon tariff