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Title: Externalities and Public Goods Economics
Description: Definitions of important vocabulary words about market failure and public/private goods in economics These notes are from a Advanced Placement Economics Class, a class equivalent to an economics class in college.
Description: Definitions of important vocabulary words about market failure and public/private goods in economics These notes are from a Advanced Placement Economics Class, a class equivalent to an economics class in college.
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Externalities and Public Goods Economics
Nonexcludable- the supplier cannot prevent consumption by people who do not pay it
Non-rivalrous (in consumption) - more than one person can consume the same unit of the good
at the same time
Free-rider problem - individuals have no incentive to pay for their own consumption and instead
will take a “free ride” on anyone nonrival in consumption, when goods are nonexcludable
Public Good- both nonexcludable and nonrival in consumption
Common Resources- is non excludable and rival in consumption; you can not stop me from
consuming the good, and more consumption by me means less of the good available to you
Pigouvian Taxes- taxes designed to reduce external costs
Pigouvian Subsidy - is a payment designed to encourage purchases and activities that yield
external benefits
Tradeable emissions permit - are licenses to emit limited quantities of pollutants that can be
bought and sold by polluters
Network Externality- when the value of the good to an individual is greater when more other
people also use the good
Marginal Private Benefit- is the marginal benefit that accrues to consumers of that good, not
including any external benefits
Marginal social benefit of a good- is the marginal private benefit plus the marginal external
benefit
Marginal external benefit- is the addition of external benefits created by one more unit of good
Marginal Private Cost- is the marginal cost of producing that good, not including any external
costs
...
Marginal External Cost- is the increase in external costs created by one or more unit of the good
Marginal Social Cost of a good - is equal to the marginal private cost of production plus its
marginal external cost
...
Socially Optimal Quantity of Pollution- quantity of pollution that society would choose if all the
costs and benefits of pollution were fully accounted for
...
When individuals take
external costs or benefits into account, they internalize the externalities
Title: Externalities and Public Goods Economics
Description: Definitions of important vocabulary words about market failure and public/private goods in economics These notes are from a Advanced Placement Economics Class, a class equivalent to an economics class in college.
Description: Definitions of important vocabulary words about market failure and public/private goods in economics These notes are from a Advanced Placement Economics Class, a class equivalent to an economics class in college.