Foundations of Microeconomics: Externalities and Efficiency

These flashcards cover key concepts related to externalities and their effects in microeconomics.

Externality

A cost or benefit that arises from production or consumption that falls on someone other than the producer or consumer.

Negative Externality

A production or consumption activity that creates an external cost.

Positive Externality

A production or consumption activity that creates an external benefit.

Marginal Private Cost

The cost of producing an additional unit of a good or service borne by the producer.

Marginal External Cost

The cost of producing an additional unit of a good or service that falls on people other than the producer.

Marginal Social Cost

The marginal cost incurred by society, including both the producer and those affected by the external costs.

Coase Theorem

The proposition that if property rights exist, only a small number of parties are involved, and transaction costs are low, then private transactions are efficient.

Abatement Technology

A technology that reduces or prevents pollution.

Cap-and-Trade

A system that sets a cap on emissions and allows trading of emission rights to achieve efficient pollution reduction.

Public Provision

The production of a good or service by a public authority that receives the bulk of its revenue from the government.

Private Subsidies

Payments from the government to private producers to cover part of the costs of production.

Vouchers

Tokens provided by the government that can be used by households to buy specified goods or services.