Economics Study Guide: Common Pool Resources and Negative Externalities

Common access/pool resources: These are resources like oceans, forests, or air that everyone can use, but one person's use reduces the amount available for others.

Rivalrous: A good is rivalrous when one person's use of it lessens the quantity or quality available for someone else, like catching a fish from a shared pond.

Excludable: A good is excludable if people can be prevented from using it unless they pay for it. Common pool resources are usually not excludable.

Tragedy of the commons: This happens when individuals acting on their self-interest deplete a shared resource, harming everyone who relies on it.

Sustainable production: Using resources today in a way that won't harm future generations' ability to meet their needs.

Market failure: When the market doesn't allocate resources efficiently, leading to wasted resources and lower overall happiness.

Allocative efficiency: The ideal situation where the supply of goods meets what society wants most, maximizing well-being.

Externality: A side effect of an economic action that affects others not involved in the transaction, without compensation.

Negative externality: A cost faced by someone who isn't involved in a transaction, like pollution affecting nearby residents.

Positive externality: A benefit enjoyed by someone who isn't involved in a transaction, like a neighbor's beautiful garden increasing your property value.

Social optimum output: The best amount of goods produced where the overall benefits to society equal the costs, maximizing welfare.

Marginal private costs (MPC): The cost to produce one extra unit of a good by a business.

Marginal social costs (MSC): The total cost to society of producing one extra unit, including the private costs and any external costs.

Marginal private benefits (MPB): The benefit a consumer gets from consuming one extra unit of a good.

Marginal social benefits (MSB): The total benefit to society from consuming one extra unit, including private and external benefits.

Negative production externalities: Costs borne by others due to a company's production, leading to higher overall costs of production.

Pigouvian tax: A tax aimed at reducing negative externalities by making the polluter pay for the cost of their pollution.

Carbon tax: A specific tax on fossil fuels based on the amount of carbon emissions they produce, promoting cleaner energy.

Tradable permits: Allow firms to trade permissions to emit a certain amount of pollution, encouraging reductions in overall emissions.

Collective self-governance: When communities manage their resources by making their own rules, rather than relying on the government or private companies.

Negative consumption externalities: Costs imposed on third parties due to an individual's consumption, such as secondhand smoke affecting non-smokers.