Microeconomics ch. 5

market based policies

economic incentives to reduce pollution vs. administrative rules

externality

a benefit or cost that affects someone not directly involved in production

negative externality

a cost of an externality

positive externality

a benefit of an externality

externalities interfere with

economic efficiencies

private cost

the cost carried by producer of good

social cost

the total cost of producing a good found by the sum of the externality and the private cost

market failure

situations in which market fails to produce the efficient level of output

the coase theorem

if transaction costs are low, private bargaining will result in an efficient solution to the problem of externalitiesth

Transaction costs

cost of time and resources that parties incur in the process of exchanging goods

net benefit

the benefit of pollution reduction and cost

property right

the right to privately owned property including ideas

two qualifications to the coase theorem; this theorem will only occur if:

all parties have full knowledge about costs and benefits of externalities and all parties are willing to accept a reasonable agreement

internalizing externalities is when

taxes are imposed on production at equal the cost of the damage

pigovian taxes and subsides

taxes and subsidies meant to bring about efficient levels of output in the presence of externalities

command and control approach

policy involving government imposing quantative limits on amount of pollutions firms are allowed to emit

exported pollution

goods made in foreign countries and when imported, produce pollutants

carbon tax

market based policy made to reduce co2 emissions

rivalry

one person’s consumption f a good means no one else can consume it

excludability

if one cannot pay for goods, you cannot consume goods

non rival

one person’s consumption of a good does not interfere with another person’s consumption

nonexcludable

it being impossible to exclude others from consumption whether they’ve paid for it or not

4 gatagories of goods

private, public, quasipublic, and common resourcep

rival and excludable

private good

non rival and non excludable

public good

excludable but not rival

quasi-public

rival but not excludable

a common good

tragedy of commons

the tendency to overuse a common resource

two solutions to tragedy of commons

norms and traditions and laws