Chapter 31 - External Costs and Environmental Policy

pollution tax

A(n) ________ changes the production process as firms switch to cleaner technology.

automobile

The ________ is by far the biggest source of smog- cause it is a pollutant.

technological innovation

A(n) ________ that decreases abatement costs will encourage firms to use the new technology to abate pollution rather than buying permits that allow pollution.

Ozone pollution

________, also known as smog, is one of our most persistent environmental problems.

Principle of Voluntary Exchange

The ________ is a voluntary exchange between two people that makes both people better off.

Coase bargaining

In general, ________ requires a small number of affected parties and small transaction costs.

supply curve

The ________ for permits is vertical at the fixed number of permits provided by the government.

mill

The ________ dumps waste into the lake, and pollution degrades the fish habitat and decreases the fish harvest.

Gas mileage

________ varies across vehicles, and a person in a car with better gas mileage would pay less than the external cost of collisions.

Coase bargaining solution

The ________, named after economist Ronald Coase, applies to a situation when there is a small number of affected parties, and the transaction costs of bargaining are relatively low.

private cost of production 

The _______________ is the production cost borne by a producer, which typically includes the cost of labor, capital, and materials.

pollution tax

The ____________ is a tax or charge equal to the external cost per unit of pollution.

social cost of production

The ________________ is the private cost plus external cost.

External production

_____________ is a cost incurred by someone other than the producer.