Ch 5 Microeconomics

Externality

A benefit or cost that affects someone who is not directly involved in the production or consumption of a good or service. ("Pollution is an example of an externality: a benefit or cost that affects someone who is not directly involved...")

Negative externality

A situation where too much of a good or service is produced at market equilibrium because external costs are ignored. ("When there is a negative externality... too much of the good or service will be produced...")

Positive externality

A situation where too little of a good or service is produced at market equilibrium because external benefits are ignored. ("When there is a positive externality... too little of the good or service will be produced...")

Private cost

The cost borne by the producer of a good or service. ("Those firms make their decisions... based on these private costs.")

Social cost

The total cost to society, including both private cost and external cost. ("The social cost is higher: the total cost to society...")

Marginal private cost

The cost to the producer of producing one more unit. ("Supply curve S1 represents just the marginal private cost...")

Marginal social cost

The cost to society of producing one more unit, including external costs. ("Supply curve S2 represents the marginal social cost...")

Private benefit

The benefit received by the consumer of a good or service. ("Private benefit... is less than the social benefit.")

Market failure

A situation in which the market fails to produce the efficient level of output. ("This is an example of market failure...")

Property rights

The rights individuals or businesses have to the exclusive use of their property. ("Property rights: The rights individuals or businesses have to the exclusive use of their property...")

Coase theorem

The idea that private bargaining can solve externalities if property rights are assigned and transaction costs are low. ("This idea has come to be known as the Coase theorem.")

Transactions costs

The costs in time and resources incurred in making and carrying out an exchange. ("Transactions costs: The costs in time and other resources...")

Pigovian tax

A tax used to correct the effects of a negative externality. ("They are known as Pigovian taxes...")

Pigovian subsidy

A subsidy used to encourage consumption or production when positive externalities exist. ("Subsidies might... amounts paid to producers or consumers...")

Command-and-control policy

A policy involving government-imposed limits or required technology to reduce pollution. ("The traditional solution... is the command-and-control approach...")

Tradable emissions permits

A system where firms can buy and sell pollution permits to achieve pollution reduction at lowest cost. ("This is the concept behind tradable emissions permits...")

Cap-and-trade

A system where the government sets a cap on emissions and issues tradable permits. ("Cap-and-trade system for sulfur dioxide emissions...")

Rivalry

When one person's consumption of a good prevents someone else from consuming it. ("Rivalry: The situation that occurs when one person's consuming a unit...")

Excludability

When someone who does not pay for a good cannot consume it. ("Excludability: The situation in which anyone who does not pay...")

Public good

A good that is nonrival and nonexcludable. (Implied from the section on public goods.)

Private good

A good that is rival and excludable. ("Markets tend to be good at providing efficient levels of private goods.")

Common resource

A good that is rival but nonexcludable. ("Common resources tend to be over consumed...")

Quasi-public good

A good that is nonrival but excludable. (Implied from the four categories of goods.)

Tragedy of the commons

Overuse of a common resource due to lack of property rights. ("The situation is referred to as the tragedy of the commons...")