Microeconomics -- chapter 10

externality

the uncompensated impact of one person’s action on the well-being of a bystander

negative externalities

something that causes a negative indirect cost to individuals

positive externalities

something that causes a positive indirect cost to individuals

industrial policy

government intervention in the economy that aims to promote technology-enhancing industries

property right

the theoretical and legal ownership of resources and how they can be used

command-and-control policies

regulate behavior directly

market-based policies

provide incentives so that private decision makers will choose to solve the problem on their own

corrective act

a tax designed to induce private decision makers to take account of the social costs that arise from a negative externality

case theorem

the proposition that if private parties can bargain without cost over the allocation of resources, they can solve the problem of externalities on their own

transaction costs

the costs that parties incur in the process of agreeing to and following through on a bargain

internalizing the externality

altering incentives so that people take account of the external effects of their actions