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Flashcards in Externalities Deck (17)
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1

externality

an unintended side effect that result from production or consumption of a good, affecting the third parties

2

social optimum

MSB = MSC

3

MSB

marginal social benefit

4

MSC

marginal social cost

5

MPC

marginal private cost

6

MPB

marginal private benefit

7

negative externality of production

harmful side effect to the society due to the production by a firm

8

negative externality of consumption

a harmful side effect to the society due to the consumption by an individual

9

internalise an externality

a government action to achieve socially desirable equilibrium for the economy

10

how to internalise external cost for MPC?

per-unit tax (e.g. carbon tax) legislature regulation (tradeable permits - aka cap and trade)

11

tradeable permit

rights to sell and buy actual or potential pollution in artificially created markets

12

how to internalise external cost for MPB?

public service campaign tax complements subsidise substitutes

13

where is true efficiency?

MSC = MSB not MPB = MPC

14

positive externality of production

beneficial side effect to the society due to the production by a firm

15

postive externality of consumption

beneficial side effect to the society due to the consumption by an individual

16

how to encourage positive externalities?

subsidies government provisions advertising

17

free rider

person who gains spillover benefit from positive externality