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