Term

Definition

Example

A policy that
limits the
quantity of
production. If
a firm
Cap and
produces
Trade System
under the limit
they can trade
the remaining
quantity to
other firms.

Clean
Technologies

Goods and
services that
have positive
externalities
when used
(low impact
on
environment)
A wind farm between Denmark and Sweden.

Common
Access
Resources

Common
Pool
Resources

Demerit
Goods

A natural
resource that
is available to
all individuals
though is
limited in
quantity (nonexcludable,
rival)
Also known as
a common
access
resource
(look above)
Goods whose
consumption
creates
external costs
(negative
externalities)

Ocean, Forest, Atmosphere

Ocean, Forest, Atmosphere

Oil, Drugs and Alcohol

Externality

Market
Failure

Merit Goods

Negative
Externalities
of
Consumption

The effects of
an individuals
activity onto
another party.
Can positively
or negatively
impact.
A failure of the
market to
achieve
Allocative
efficiency,
resulting in an
over-allocation
or underallocation of
resources.
Goods whose
consumption
creates
external
benefits
(positive
externalities)
The
consumption
of a
good/service
has a larger
negative
impact on
society than a
single
consumer.

Monopolies, Externalities, Public Resources

Education, Health Care

Negative
Externalities
of Production

NonExcludable

NonRivalrous

Positive
Externalities
of
Consumption

The
production of
a good/service
negatively
impacts
society more
than the
private
production.

All individuals
have the
option to
consume that
good/service.
The
consumption
from one
individual
does not
affect others.

When the
consumption
of a
good/service
is more
beneficial to
society than
to a private
individual.

Highways

Flood barriers

Positive
Externalities
of Production

Public Good

Pure Public
Good

Sustainability

Asymmetric
Information

When the
production of
a good/service
is more
beneficial for
society than
private.

Goods that
tend to be
beneficial for
all individuals
and is nonexcludable.
A
good/service
that is
available to
everyone and
there is an
unlimited
quantity of it.

Police

Oxygen and Sunlight (depending on where and when)

The ability for

a system to
endure
external
factors.

When one
party does not
have the
same
information
available as
the other

Buying a used car: The producer hides certain

information from the consumer.
At a job interview: The consumer only releases some
information about self.

leading to
Allocative
inefficiency.

Imperfect
Competition

A market in
which the
supplier
impacts the
prices and
information is
unevenly
distributed.

Monopoly
Power

When a single
firm is the
only provider
of a certain
good/service.
Leads to
Allocative
inefficiency.