Lecture 9: Externalities and Public Goods

A set of flashcards covering key concepts related to externalities, public goods, and economic theories discussed in the lecture.

Externality

A situation where an economic activity has a spillover effect, either positive or negative, on bystanders who are not directly involved.

Negative Externality

An economic activity that has a negative spillover effect, such as pollution or second-hand smoke.

Positive Externality

An economic activity that has a positive spillover effect, such as education or vaccinations.

Deadweight Loss

A loss in economic efficiency that occurs when the equilibrium outcome is not achievable or not achieved.

Public Good

A good that is non-rival and non-excludable, meaning it can be consumed by everyone without reduction in availability.

Free Rider Problem

A situation where individuals benefit from a resource without paying for its cost, often associated with public goods.

Coase Theorem

A proposition that private bargaining will result in an efficient allocation of resources in the presence of externalities.

Common Pool Resource

Resources that are non-excludable but rival in consumption, such as fisheries or water supplies, which can be overused.

Pecuniary Externality

A market exchange that affects others through market prices without creating inefficiencies.

Corrective Tax (Pigouvian tax)

A tax imposed to encourage producers to reduce negative externalities by internalizing social costs.

Corrective Subsidy

A subsidy designed to encourage consumption of a good with positive externalities by increasing demand.