Principles of Microeconomics: Chapter 10 Vocab

question

externality

answer

the uncompensated impact of one person's actions on the well-being of a bystander

question

internalizing the externality

answer

altering incentives so that people take into account the external effects of their actions

question

corrective tax

answer

a tax designed to induce private decision makers to take into account the social costs that arise from a negative externality

ex/Taxing a firm that produces pollution in order to reduce pollution

question

Coase theorem

answer

the proposition that if private parties can bargain without cost over the allocation of resources, they can solve the problem of externalities on their own

question

transaction costs

answer

the costs that parties incur during the process of agreeing to and following through on a bargain

1 of 5

question

externality

answer

the uncompensated impact of one person's actions on the well-being of a bystander

question

internalizing the externality

answer

altering incentives so that people take into account the external effects of their actions

question

corrective tax

answer

a tax designed to induce private decision makers to take into account the social costs that arise from a negative externality

ex/Taxing a firm that produces pollution in order to reduce pollution

question

Coase theorem

answer

the proposition that if private parties can bargain without cost over the allocation of resources, they can solve the problem of externalities on their own

question

transaction costs

answer

the costs that parties incur during the process of agreeing to and following through on a bargain

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