Chapter 16: Public Goods, Externalities, and Information Asymmetries

________ demand private goods, and profit- seeking suppliers produce goods that satisfy the demand.

________- Once a producer has provided a public good, everyone including nonpayers can obtain the benefit.

________- Produced through competitive market system; offered for sale.

________- Ways to overcome information difficulties.

________- When one person buys and consumes a product, it is not available for another person to buy and consume.

________- Government is not needed to remedy external costs or benefits where (1) property ownership is clearly defined, (2) the number of people involved is small, and (3) bargaining costs are negligible.

Market for externality rights- Market- based approach to correcting ________.

________- and- trade program- An appropriate pollution- control agency determines the amount of pollutants that firms can discharge into the water or air of a specific region annually while maintaining the water or air quality at some acceptable level.

Non- ________- No effective way of ________ individuals from the benefit of the good once it comes into existence.

________ controls- Legislation limiting activities causing negative externalities; raise marginal cost of production.

________ schedules show the price someone is willing to pay for the extra unit of each possible quantity.

________- As long as "rights "to air, water, and certain land resources are commonly held and are freely available, there is no incentive to maintain them or use them carefully.

________- One persons consumption of a good does not preclude consumption of the good by others.

________ curve D lies to the left of (or below) the full- benefits demand curve.

________- Arises when information known by the first party to a contract or agreement is not known by the second and, as a result, the second party incurs major costs.

________- The earths surface has warmed over the last century by about 1 degree Fahrenheit, with an acceleration of warming during the past two decades.

________- Cost or a benefit accruing to an individual or group- a third party- that is external to a market transaction.

________- Used to decide whether to provide a particular public good and how much of it to provide.

________- Sellers can keep people who do not pay for a product from obtaining its benefits.

Produced through competitive market system; offered for sale

Non-rivalry + non-excludability

Once a producer has provided a public good, everyone including nonpayers can obtain the benefit

Used to decide whether to provide a particular public good and how much of it to provide

Tells us which plan provides the maximum excess of total benefits over total costs or, in other words, the plan that provides society with the maximum net benefit

Cost or a benefit accruing to an individual or group—a third party—that is external to a market transaction

Government is not needed to remedy external costs or benefits where (1) property ownership is clearly defined, (2) the number of people involved is small, and (3) bargaining costs are negligible

As long as “rights” to air, water, and certain land resources are commonly held and are freely available, there is no incentive to maintain them or use them carefully. As a result, these natural resources are overused and thereby degraded or polluted

Market-based approach to correcting negative externalities

An appropriate pollution-control agency determines the amount of pollutants that firms can discharge into the water or air of a specific region annually while maintaining the water or air quality at some acceptable level

Occurs when society’s marginal cost and marginal benefit of reducing that externality are equal (MC = MB)

The earth’s surface has warmed over the last century by about 1 degree Fahrenheit, with an acceleration of warming during the past two decades

Unequal knowledge possessed by the parties to a market transaction

Tendency of one party to a contract or agreement to alter her or his behavior, after the contract is signed, in ways that could be costly to the other party

Arises when information known by the first party to a contract or agreement is not known by the second and, as a result, the second party incurs major costs