Chapter 32 Terms 102 - E nvi ronmental Economics A...

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Environmental Economics: Addressing the difference between private costs and social costs. Private Costs: also called internal costs, are costs incurred by individuals when they use scarce resources. Social costs: are the full costs that society bears when a resource-using action occurs. For example, the social cost of driving a car is equal to all of the private costs such as buying gasoline plus any additional cost that society bears, such as air pollution and traffic congestion. Externalities: A situation in which a private cost or benefit diverges from a social cost or benefit, that is, the cost or benefits of an action are not fully borne by the two parties engaged in exchanges or by an individual engaging in a scarce resource-using activity. Correcting for Externalities: The signals in the economy must be changed so that decision-makers will take into account all the costs of their actions. A. The Polluters’ Choice: Faced with a cost of polluting, polluters
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