AREC 250 final
Terms
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- Market failure
- -failure of a competitive market to allocate the socially optimal quantity of a good
- externalities
- -an external cost or benefit of an activity
- external costs
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-a cost that falls on those other than the ones that are pursuing the activity
-examples: water pollution, noise pollution, etc - external benefits
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-a benefit of an activity received by people other than the ones who are pursuing the activity
-examples: pollination services, beautiful landscaping - social marginal costs
- -private marginal costs (the supply curve) + external marginal costs
- social demand
- -private demand + external marginal benefit
- difference between social marginal costs and private marginal costs
- -private is the costs that the falls directly on the firm
- difference between social demand and private demand
- -private is the benefits to only the people involved in the activity
- coase theorem
- -in the absence of transactions costs, parties of the externality will agree on an allocation of resources that is socially optimal
- desirable features of TEP program
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-government agency has control over total amount of pollution
-polluters will achieve the pollution reduction goal at the lowest possible cost
-result 2 is not affected by the initial allocation of permits - uniform standard
- -specifies the emissions reduction that all firms must achieve
- pure public good
- -goods that are non-rival and non-exculdable
- pure private good
- -goods that are rival and excludable
- common good
- -good that is rival but non excludable
- collective good
- -a good that is non rival but excludable
- free-riding
- -enjoying the benefits from a good without contributing to the provision of the good
- solution to market failure by public goods
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-taxation
-government provision