ECON 101 Chapter 10: Externalities and Public Goods

These flashcards cover key terms and concepts related to externalities, public goods, and the implications of market failures as discussed in ECON 101.

Externalities

Effects of an action that impact bystanders and are not reflected in market prices.

Negative externality

When an action causes too much activity, resulting in harm to others.

Positive externality

When an action causes too little activity, providing benefits to others.

Marginal Private Cost (MPC)

The cost incurred by an individual or firm for an action.

Marginal External Cost (MEC)

The harm a particular action imposes on others.

Marginal Social Cost (MSC)

The total cost to society of producing one additional unit, equal to MPC + MEC.

Marginal Private Benefit (MPB)

The benefit received by the individual or firm undertaking an action.

Marginal External Benefit (MEB)

The benefits that accrue to others from an individual's or firm's action.

Marginal Social Benefit (MSB)

The total benefit to society from producing one additional unit, equal to MPB + MEB.

Coase Theorem

States that private negotiations can lead to the socially efficient outcome if property rights are well defined and transaction costs are low.

Pigouvian tax

A tax imposed to correct the negative effects of externalities by equalizing the private cost with the social cost.

Cap-and-trade

An environmental policy that sets a limit on emissions and allows firms to buy and sell permits.

Excludable good

A good that can prevent non-payers from accessing it (e.g., paywall, subscription services).

Nonexcludable good

A good that cannot feasibly exclude non-payers (e.g., public parks, street lighting).

Rival good

A good whose consumption by one individual reduces its availability for others (e.g., a sandwich).

Nonrival good

A good whose consumption does not diminish its availability for others (e.g., video recordings).

Public good

A good that is both nonrival and nonexcludable, often underprovided in a free market.

Tragedy of the commons

A situation where shared resources are overused and depleted due to individual incentives.