Some Policies Toward Externalities Provide Incentives So That Private Decision

question 27

Essay

Some policies toward externalities provide incentives so that private decision makers will choose to solve the problem on their own. What name do we use for these types of policies?

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Definitions:

Opportunity Cost

The cost of foregone alternatives; the value of the best alternative given up when a decision is made to choose one option over another.

Production Possibilities Frontier

A curve depicting all maximum output possibilities for two goods, given a set of inputs, representing the trade-off between different choices in the allocation of resources.

Opportunity Cost

Giving up possible gains from several options by choosing a particular one.

Bowed Outward

A description of the shape of a curve on a graph, such as the production possibilities frontier, indicating increasing opportunity costs.