Briefly and concisely define the following concepts and terms.
a. marginal social cost
b. detrimental externalities
c. free-rider problem
d. cost disease
e. “defective telescopic faculty”
a. Marginal social cost is the sum of marginal private cost, the portion of marginal cost caused by an activity that is paid for by the persons who carry out the activity, and incidental cost, which is the portion of marginal cost borne by others.b. Detrimental externalities are incidental damages to others not compensated by those who generate the externalities. Examples include noise, air, and water pollution.c. Free riders are nonpaying users who cannot be excluded from enjoying a public good. The good would have to be provided by government or nonprofit institutions since private enterprise would not provide a good for which users would not pay.d. The cost disease is the increase in cost of services such as education, health care, and police protection because they are not amenable to labor-saving innovations.e. A defective telescopic faculty is the term used by British economist A. C. Pigou to refer to individuals who are too shortsighted to give adequate weight to the future. When applied to the trade-off between current consumption and investment for the future, it implies too little tends to be invested for the future.
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In perfect competition, ________
A) there are restrictions on entry into the market B) firms in the market have advantages over firms that plan to enter the market C) only firms know their competitors' prices D) there are many firms that sell identical products
Firms free ride on the research and development of other firms when they
A) buy a firm's newly developed product, and then give it away to consumers. B) choose a level of research and development that is inefficiently high. C) license a new technology from a firm that developed the new technology. D) use knowledge other firms have developed without paying for that knowledge.