Mrs. Law AP Economics
What are externalities, and how do they affect markets?
What are externalities?
What are internal costs?
Due Date: January 28, 2016
Market Inefficiencies: Externalities and Public Goods
What are external costs?
What are social costs?
The Third Part y Problem
When does an externality exist?
What does the phrase a “third party problem” mean? a.
When does a negative externality exist? b.
When does a positive externality exist? c.
What is the significance of the social optimum? d.
What does it mean to have an externality “internalized”?
Figure 7.1 Correcting a Negative Externality: include graph and corrective measures
Figure 7.2 Correcting a Positive Externality: include graph and corrective measures
What are private goods and public goods?
What are property rights?
What role do property rights play in market inefficiencies, specifically the relationship to externalities?
What is private property?
What is the relationship between private property rights and externalities?
The Coase Theorem
What does the Coase Theorem state?
Why may the Coase Theorem result be difficult to achieve in reality?
Private and Public Goods
Free Rider Problem
Common Resource Goods
Table 7.3 The Four Types of Goods: redraw the table from page 226
What are the challenges of providing nonexcludable goods?
Cost Benefit Analysis
Tragedy of the Commons
Example of the tragedy of commons occurring in society
Incentives associated with common property and thus leading to the “tragedy of commons”
Solutions to the Tragedy of the Commons
Cap and Trade
Pros and Cons of such a program