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Econ test #3
| Question | Answer |
|---|---|
| externalities | cost or benefit that falls on a third party's interest who aren't accounted for |
| negative externalities | people are negatively affected by someone's act of self interest |
| companies want to make more money, so they produce more products which relies on the running of machines that contribute significantly to air pollution. this is an example of | negative externalities |
| positive externalities | people are positively affected by someones act of self interest |
| a person goes to get a covid vaccine because they are scared of contracting the disease however they are simultaneously decreasing rising covid cases in their region , keeping other people safe | positive externalities |
| what do externalities lead to | market failure |
| why does externalities lead to market failure | lead to an inefficient allocation of resources |
| what do negative externalities lead to | overproduction |
| what do positive externalities lead to | underproduction |
| when marginal social benefit = marginal social cost | the allocative efficiency is reached therefore the good is socially optimal |
| marginal social cost are equal to what | marginal cost + marginal external cost |
| coase theorem | when property right are defined and transaction cost are zero private parties can bargain to solve externalities |
| excludable | goods individuals can be prevented from using ( things you have to buy) |
| non-excludable | people can't be prevented from using it |
| rival | one persons use of a good decreases the goods available to the next |
| non-rival | one persons use of a good does not decrease the quantity for everyone else |
| excludable + rival | private |
| non-excludable + rival | common resources |
| excludable + non-rival | club goods |
| non-excludable + non-rival | public goods |
| public goods | private markets fail to reach the social optimal levels of pubic goods |
| free-rider problem | people can benefit without contributing |
| what helps public goods reach social optimal level | government provisions |
| tragedy of the commons | absence of incentives to prevent depletion and overuse of common resources (there is no telling someone how much they can use) |
| what is the tragedy of commons a result of | maximization of self-interest/ individual use |
| regulations, taxes/fees, establish property rights | solutions to the tragedy of commons |
| profit = | total revenue-total cost |
| accounting profit | total revenue - total explicit cost |
Created by:
Zariii