AP Microeconomics Unit 6

Market Failure and the Role of Government (** means untrustworthy definition)

Coase Theorem

states that payment between private parties can achieve an efficient solution to externality problems as long as transaction costs are sufficiently low.

Excludable

describes a good that the supplier of that good can prevent people who do not pay from consuming it

External Benefit

a benefit that an individual or a firm confers on others without receiving compensation.

External Cost

an uncompensated cost that an individual or a firm imposes on others

Externalities

External costs and benefits

Fair-Return Quantity

The quantity where P=ATC\*\*

Free Rider Problem

individuals have no incentive to pay for their own consumption of nonexcludable goods, and instead will take a “free ride” on anyone who does pay

Gini Coefficient

a number that summarizes a country’s level of income inequality based on how unequally income is distributed.

Lorenz Curve

shows the percentage of all income received by the poorest members of the population, from the poorest 0% to the poorest 100%.

Marginal External Benefit

the addition to external benefits created by one more unit of the good.

Marginal External Cost

the increase in external costs to society created by one more unit of the good. (

Marginal Private Benefit

the marginal benefit that accrues to consumers of the good, not including any external benefits.

Marginal Private Cost

the marginal cost of producing the good, not including any external costs.

Marginal Social Benefit

the additional gain to society as a whole from an additional unit.

Marginal Social Cost

the additional cost imposed on society as a whole by one additional unit.

Market Failure

when the outcome in a market is ineffective.

Negative Externalities

external costs.

Nonexcludable

describes a good that the supplier cannot prevent its consumption by people who do not pay for it

Nonrival in Consumption

a good that more than one person can consume the same unit of the good at the same time.

Positive Externalities

external benefits

Private Good

a good that is both excludable and rival in consumption.

Progressive Tax

a tax that rises more than in proportion to income.

Proportional Tax

a tax that rises in proportion to income.

Public Good

A good that is both nonexcludable and nonrival in consumption.

Regressive Tax

a tax that rises less than in proportion to income.

Rival in Consumption

when a unit of the good cannot be consumed by more than one person at the same time.

Socially Optimal Quantity

the quantity that makes society as well off as possible, taking all costs and benefits into account

Spillovers

An unexpected outcome of something in economics, such as an externality\*\*

Transaction Costs

the costs to individuals of making a deal