Economics Externalities Study Cards

Enhance Your Learning with Economics - Externalities Flash Cards for quick learning



Externalities

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

Positive Externalities

Benefits that are enjoyed by a third party as a result of an economic transaction between two other parties.

Negative Externalities

Costs that are suffered by a third party as a result of an economic transaction between two other parties.

Production Externalities

External costs or benefits that occur during the production process of a good or service.

Consumption Externalities

External costs or benefits that occur during the consumption of a good or service.

Market Failure

A situation in which the market fails to allocate resources efficiently due to the presence of externalities.

Government Intervention

Actions taken by the government to correct market failures caused by externalities.

Internalizing Externalities

The process of incorporating the costs or benefits of externalities into the decision-making of individuals or firms.

Coase Theorem

The proposition that if property rights are well-defined and transaction costs are low, private bargaining can result in an efficient solution to externalities.

Pigouvian Taxes

Taxes imposed on goods or activities that generate negative externalities, with the aim of reducing the quantity consumed or produced.

Tragedy of the Commons

A situation in which individuals, acting independently and rationally, deplete a shared resource, leading to its degradation or depletion.

Public Goods

Goods that are non-excludable and non-rivalrous, meaning that one person's consumption of the good does not diminish its availability to others.

Common Resources

Goods that are non-excludable but rivalrous, meaning that one person's use of the resource reduces its availability to others.

Externality Costs and Benefits

The costs or benefits that arise from externalities, which can be positive or negative depending on the context.

Marginal Social Cost

The additional cost imposed on society as a whole by an additional unit of a good or service.

Marginal Social Benefit

The additional benefit received by society as a whole from an additional unit of a good or service.

Efficiency and Deadweight Loss

Efficiency occurs when the marginal social cost equals the marginal social benefit, while deadweight loss represents the loss of economic efficiency due to market distortions.

Private Solutions to Externalities

Solutions to externalities that arise through private bargaining and voluntary agreements between affected parties.

Social Solutions to Externalities

Solutions to externalities that involve government intervention and the imposition of regulations or taxes to internalize the costs or benefits.

Command-and-Control Policies

Government policies that directly regulate the behavior of individuals or firms through the use of laws, regulations, or standards.

Market-Based Policies

Government policies that use market mechanisms, such as taxes, subsidies, or cap-and-trade systems, to address externalities.

Cap-and-Trade Systems

A market-based approach to controlling pollution, where the government sets a limit on total emissions and issues permits that allow firms to emit a certain amount. Permits can be bought, sold, or traded.

Subsidies and Taxes

Government interventions that provide financial incentives, such as subsidies, or disincentives, such as taxes, to encourage or discourage certain behaviors related to externalities.

Property Rights

Legal rights that individuals or firms have over the use, control, and transfer of resources, including the right to exclude others from using the resource.

Transaction Costs

The costs associated with the process of exchanging goods, services, or resources, including the costs of searching for information, negotiating agreements, and enforcing contracts.

Positive Externalities in Education

The benefits that society receives from investments in education, such as a more productive workforce and a higher overall level of knowledge and skills.

Positive Externalities in Healthcare

The benefits that society receives from investments in healthcare, such as improved public health, reduced healthcare costs, and increased productivity.

Positive Externalities in Technology

The benefits that society receives from technological advancements, such as increased productivity, improved communication, and enhanced quality of life.

Negative Externalities in Pollution

The costs that society incurs from pollution, such as health problems, environmental degradation, and reduced quality of life.

Negative Externalities in Traffic Congestion

The costs that society incurs from traffic congestion, such as increased travel time, fuel consumption, and air pollution.

Negative Externalities in Smoking

The costs that society incurs from smoking, such as healthcare expenses, lost productivity, and negative health effects on both smokers and non-smokers.

Production Externalities in Industrial Pollution

The costs that society incurs from industrial pollution, such as air and water pollution, ecosystem damage, and negative health effects on nearby communities.

Production Externalities in Noise Pollution

The costs that society incurs from noise pollution, such as sleep disturbances, hearing loss, and reduced quality of life in affected areas.

Production Externalities in Deforestation

The costs that society incurs from deforestation, such as loss of biodiversity, increased greenhouse gas emissions, and reduced availability of natural resources.

Consumption Externalities in Secondhand Smoke

The costs that society incurs from exposure to secondhand smoke, such as increased risk of respiratory diseases, heart disease, and lung cancer.

Consumption Externalities in Alcohol

The costs that society incurs from excessive alcohol consumption, such as healthcare expenses, traffic accidents, and social problems.

Consumption Externalities in Fast Food

The costs that society incurs from excessive consumption of fast food, such as increased risk of obesity, diabetes, and other health problems.

Market Failure in Externalities

The failure of markets to allocate resources efficiently in the presence of externalities, leading to suboptimal outcomes for society as a whole.

Government Intervention in Externalities

The actions taken by the government to address market failures caused by externalities and promote efficient resource allocation.

Internalizing Externalities in Carbon Pricing

The process of incorporating the costs of carbon emissions into the prices of goods and services through mechanisms such as carbon taxes or cap-and-trade systems.

Internalizing Externalities in Subsidies

The process of providing subsidies to encourage activities that generate positive externalities, such as investments in education, healthcare, or renewable energy.

Coase Theorem in Externalities

The proposition that if property rights are well-defined and transaction costs are low, private bargaining can result in an efficient solution to externalities, regardless of the initial allocation of property rights.

Pigouvian Taxes in Externalities

Taxes imposed on goods or activities that generate negative externalities, with the aim of internalizing the costs and reducing the quantity consumed or produced.

Tragedy of the Commons in Externalities

The phenomenon where individuals, acting in their own self-interest, deplete or degrade a shared resource due to the absence of property rights or regulations.

Public Goods in Externalities

Goods that are non-excludable and non-rivalrous, leading to underprovision in the absence of government intervention due to the free-rider problem.

Common Resources in Externalities

Goods that are non-excludable but rivalrous, leading to overuse or depletion in the absence of government intervention due to the tragedy of the commons.

Efficiency and Deadweight Loss in Externalities

Efficiency occurs when the marginal social cost equals the marginal social benefit, while deadweight loss represents the loss of economic efficiency due to market distortions caused by externalities.