Micro Economics (Externalities and Public Goods)

When goods have no prices

the market forces that normally allocate resources are absent

excludable

if a person can be prevented from using it

rival in consumption

if one persons use of a good diminishes others use

Private Good

Excludable; Rival in consumption

Public Good

Non-excludable; non-rival in consumption

Common Resource

Non-Excludable; Rival in consumption

Club Good

Excludable; non-rival in consumption

Free Rider

A person who receives the benefits of a good but avoids paying for it

externality

the uncompensated impact of one person's actions on the well-being of a bystander

Corrective Tax

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

Coase 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 Cost

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

private value

direct value to buyers

external benefit

the value of the positive impact on bystanders

external cost

value of the negative impact on bystanders

social cost

the expense to an entire society as whole from an event or policy

private cost

the costs the firm pays for workers, equipment and so forth

Internalizing the externality

not wanting to eliminate whatever it is, so you offer an incentive so that people take account of the external effect of their actions