ECON 101 Chapter Notes - Chapter 5: Ronald Coase, Coase Theorem, Public Good
Document Summary
Chapter 5: externalities, environmental policy, and public goods. Coase theorem: the argument of economist ronald coase that if transactions costs are low, private bargaining will result in an efficient solution to the problem of externalities. Command-and-control approach: an approach that involves the government imposing quantitative limits on the amount of pollution firms are allowed to emit, or requiring firms to install specific pollution control devices. Common resource: a good that is rival but nonexcludable. Excludability: anyone who does not pay for a good cannot consume it. Externality: benefit or cost to parties who are not involved in a transaction. Free riding: involves benefiting from a good without paying for it. Market failure: a situation in which the market fails to produce the efficient level of output. Pigovian taxes and subsidies: government taxes and subsidies intended to bring about an efficient level of output in the presence of externalities.