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micro quiz 4
| Term | Definition |
|---|---|
| nonrival good | people can use it as much as they want without it running out |
| rival good | a good that can be used up making it simple to require people to pay for the good |
| nonexcludable good | a good that people cannot prevented from using |
| public good | a good that is both nonexcludable and nonrival hence subject to the free-rider problem won't be created in a private market (people won't pay for a good everyone can use anyway causing them to be underproduced since equilibrium quantity is below eq) |
| free-rider problem | when someone can enjoy the benefits of a good without bearing the costs (nonexcludable) |
| club good | a good that is excludable but nonrival |
| common resources | goods that are rival but nonexcludable |
| tragedy of the commons | tendency to overconsume a common resource |
| indivisible transfer quotas | allow people to sell/buy parts of their quota in order to fully benefit catch shares/cap and trade ex fishermen/pollution |
| other methods to regulate common resources | private bargaining, marketable permits, corrective taxes and subsidies, quotas and mandates, government provisions |
| externality | a side effect on bystanders whose interests aren't fully taken into account which can lead to market failure does not include price changes since they balance out |
| negative externality | harmful side effects that lead to external costs and overproduction of a good |
| positive externalities | positive side effects that bring external benefits and underproduction of goods and external benefits |
| private interest | the costs and benefits one personally incurs |
| society's interest | all costs and benefits whether they're for oneself or others (externalities occur when private and society interests conflict) |
| marginal private cost | refers to the extra cost that the seller incurs to produce one more unit |
| marginal external cost | the extra cost imposed on bystanders from producing which tends to be ignored by producers |
| marginal social cost | the sum of the marginal private costs paid by the seller and the marginal external costs borne by bystanders =marginal private cost + marginal external cost |
| marginal private benefit | the extra benefits buyers accrue |
| marginal external benefit | the extra benefits enjoyed by bystanders which tend to be ignored by buyers |
| marginal social benefit | the sum of marginal benefit accruing to the buyer and the marginal external benefit that accrues to bystanders |
| socially optimal quantity | the quantity that is most efficient for society as a whole, taking account all of the costs and benefits between buyers, sellers, and bystanders largest economic surplus occurs when marginal social benefit=marginal social cost |
| rational rule for society | produce more of an item as long as its marginal social benefit is at least as large as the marginal social cost |
| corrective tax | can induce people to take account of the negative externalities they create to make people treat the choices as if they're considering the marginal external costs set equal to the marginal external costs |
| corrective subsidies | can lead people to consider the positive externalities that their actions generate |
Created by:
allison_07