Externalities and Public Policy

These flashcards summarize key vocabulary related to externalities and public policy as covered in the lecture.

Negative Externality

A cost imposed on third parties not involved in an economic transaction, often leading to over-production.

Positive Externality

A benefit enjoyed by third parties not directly involved in a transaction, usually leading to under-production.

Pollution Abatement

Measures taken to reduce, control, or eliminate pollution emissions.

Emissions Tax

A tax imposed on the quantity of pollution emitted, incentivizing firms to reduce their emissions.

Pigouvian Subsidy

A subsidy intended to encourage production or consumption of a good that has positive externalities.

Tradable Emissions Permits

Allowances issued by the government that enable firms to emit a specific amount of pollution and can be traded among firms.

Social Cost

The total cost to society of producing a good, including both private costs and external costs.

Social Benefit

The total benefit to society from consuming a good, including both private benefits and external benefits.

Deadweight Loss

A loss of economic efficiency that occurs when the optimal quantity of a good is not produced or consumed.

Network Externality

The effect on a user of a good or service that is influenced by the number of other users.