Key Terms
- additional external cost
- additional costs incurred by third parties outside the production process when a unit of output is produced
- biodiversity
- the full spectrum of animal and plant genetic material
- command-and-control regulation
- laws that specify allowable quantities of pollution and that also may detail which pollution-control technologies one must use
- externality
- a market exchange that affects a third party who is outside or “external” to the exchange; sometimes called a “spillover”
- international externalities
- externalities that cross national borders and that a single nation acting alone cannot resolve
- market failure
- When the market on its own does not allocate resources efficiently in a way that balances social costs and benefits; externalities are one example of a market failure
- marketable permit program
- a permit that allows a firm to emit a certain amount of pollution; firms with more permits than pollution can sell the remaining permits to other firms
- negative externality
- a situation where a third party, outside the transaction, suffers from a market transaction by others
- pollution charge
- a tax imposed on the quantity of pollution that a firm emits; also called a pollution tax
- positive externality
- a situation where a third party, outside the transaction, benefits from a market transaction by others
- property rights
- the legal rights of ownership on which others are not allowed to infringe without paying compensation
- social costs
- costs that include both the private costs incurred by firms and also additional costs incurred by third parties outside the production process, like costs of pollution
- spillover
- see externality