C
Coase theorem the proposition that if property rights are well defined and there are no transactions costs, an efficient allocation of resources will result, even if externalities exist.

complementary goods goods that tend be used together, such as gasoline and automobiles.

consumer surplus the benefits consumers receive from a product in excess of the amount they pay for it.

E
economic efficiency an allocation of resources that maximizes net social benefits; perfectly competitive markets in the absence of externalities are efficient.

environmental externalities environmental impacts of an economic activity that are not reflected in the market costs or prices associated with the activity.

environmental valuation assigning monetary values to environmental goods and services using economic techniques.

equity fairness in the relative distribution of goods or services across a population; can be applied to income and environmental quality.

external benefit(s) a benefit, not necessarily monetary, not reflected in a market transaction.

external cost(s) a cost, not necessarily monetary, not reflected in a market transaction.

F
free market environmentalism the view that a more complete system of property rights and expanded use of market mechanisms is the best approach to solving issues of resource use and pollution control.

free rider effect the incentive for people to avoid paying for a resource when the benefits they obtain from the resource are unaffected by whether they pay; results in the undersupply of public goods.

G
government regulation direct government control through the use of a specific rule or standard, as applied for example to permissible pollution emission levels.

H
holdout effect the ability of a single entity to hinder a multi-party agreement by making disproportionate demands.

I
internalizing externalities using approaches such as taxation to incorporate external costs and benefits into market decisions.

M
marginal benefit the benefit of producing or consuming one more unit of something.

marginal cost the cost of producing or consuming one more unit of something.

market demand schedule the relationship between the price of a good or service and the quantity consumers are willing to purchase.

market equilibrium the interaction of supply and demand resulting in a price at which no excess demand or supply exists.

market supply schedule the relationship between the price of a good or service and the quantity producers are willing to produce.

N
net social benefit the social gain that results when total benefits exceed total costs, including external benefits and costs.

net social loss the social loss that results when total costs exceed total benefits, including external benefits and costs.

O
optimal pollution (level) the pollution level that maximizes net social benefits.

P
Pigovian tax a per-unit tax set equal to the external damage caused by an activity, such as a tax per ton of pollution emitted equal to the external damage of a ton of pollution.

polluter pays principle the view that those responsible for pollution should pay for associated external costs such as health costs and damage to wildlife habitats.

pollution tax(es) a per-unit tax based on the level of pollution.

private choice individual preferences usually expressed through market behavior.

private optimum the optimal allocation or production of a resource based on market behavior.

producer surplus the net benefit accruing to producers of a good, measured by the difference between the price received and costs of production.

property rights the set of rights that belong to the resource owner, such as a landowner’s right to prohibit trespassing.

R
right to pollute a system that gives an entity a right to emit a certain quantity of a pollutant, such as a tradable emissions permit.

S
social benefit the market and nonmarket benefits associated with a good or service.

social cost the market and nonmarket costs associated with a good or service.

social optimum an allocation of resources that maximizes net social benefits (equal to social benefits minus social costs).

subsidies government assistance to an industry or economic activity; subsidies can be direct, through financial assistance, or indirect, through protective policies.

T
total cost of pollution a monetary measure of pollution damage, including both financial and social costs.

transactions costs costs associated with a market transaction or negotiation, such as legal and administrative costs to transfer property or to bring disputing parties together.

U
utility the level of satisfaction obtained from an activity.

W
welfare analysis an economic tool that analyzes the total costs and benefits of alternative policies to different groups, such as producers and consumers.