an external benefit that results when new technological knowledge spreads among firms.

the percentage of the population with incomes below the poverty threshold.

external costs.

taxes designed to correct for the effects of external costs.

a payment designed to correct for the effects of external benefits.

a good is nonrival in consumption if more than one person can consume the same unit of the good at the same time.

rules that protect the environment by specifying limits for or actions by producers and consumers.

even in the presence of externalities, an economy can always reach an efficient solution as long as transaction costs are sufficiently low.

the marginal private benefit plus the marginal external benefit.

an artificially scarce good is a good that is excludable but nonrival in consumption.

a program that supplements the income of low-income workers.

occurs when regulators set a monopoly’s price equal to its marginal cost to achieve efficiency.

a number that summarizes a country’s level of income inequality based on how unequally income is distributed.

a benefit that an individual or a firm confers on others without receiving compensation.

goods that are nonexcludable suffer from the free-rider problem. Individuals have no incentive to pay for their own consumption and instead will take a “free ride” on anyone who does pay.

an uncompensated cost that an individual or a firm imposes on others.

a good that is both excludable and rival in consumption.

shows the percentage of all income received by the poorest members of the population, from the poorest 0% to the poorest 100%.

licenses to emit limited quantities of pollutants that can be bought and sold by polluters.

when individuals take external costs or benefits into account, they internalize the externalities.

nonexcludable and rival in consumption; you can’t stop others from consuming the good, and when they consume it, less of the good is available for you.

the addition to external benefits created by one more unit of the good.

the additional cost imposed on society as a whole by an additional unit of pollution.

both nonexcludable and nonrival in consumption.

a good is rival in consumption if the same unit of the good cannot be consumed by more than one person at the same time.

a tax that depends on the amount of pollution a firm produces.

external benefits.

external costs and benefits

a benefit given in the form of goods or services

the depletion of a common resource that occurs when individuals ignore the fact that their use depletes the amount of the resource remaining for others.

the average income across all households.

the quantity of pollution that society would choose if all the costs and benefits of pollution were fully accounted for.

available only to individuals or families whose incomes fall below a certain level.

the additional gain to society as a whole from an additional unit of pollution.

the marginal cost of producing that good, not including any external costs.

a good is subject to a network externality when the value of the good to an individual depends on how many people also use the good.

when a good is nonexcludable, the supplier cannot prevent consumption by people who do not pay for it.

a good is excludable if the supplier of that good can prevent people who do not pay from consuming it.

the marginal external cost of a good is the increase in external costs to society created by one more unit of the good.

occurs when regulators set a monopoly’s price equal to its average cost to prevent the firm from incurring a loss.

equal to the marginal private cost of production plus its marginal external costs.

the marginal benefit that accrues to consumers of a good, not including any external benefits.

the annual income below which a family is officially considered poor.

the income of the household lying in the middle of the income distribution.

the expenses of negotiating and executing a deal.