Final     the uncompensated impact of one person's actions on the well being of a bystander altering incentives so that people take account of the external effects of their actions a tax designed to induce private decision makers to take account of the social costs that arise from a negative externality the proposition that if private parties can bargain without cost over the allocation of resources, they can solve the problem of externalities on their own the costs that parties incur in the process of agreeing to and following through on a bargain the property of a good whereby a person can be prevented from using it the property of a good whereby one person's use diminishes other people's use goods that are both excludable and rival in consumption goods that are neither excludable nor rival in consumption goods that are rival in consumption but not excludable

1. externality

the uncompensated impact of one person's actions on the well being of a bystander

2. internalizing the externality

altering incentives so that people take account of the external effects of their actions

3. corrective tax

a tax designed to induce private decision makers to take account of the social costs that arise from a negative externality

4. coase theorem

the proposition that if private parties can bargain without cost over the allocation of resources, they can solve the problem of externalities on their own

5. transaction costs

the costs that parties incur in the process of agreeing to and following through on a bargain

6. excludability

the property of a good whereby a person can be prevented from using it

7. rivalry in consumption

the property of a good whereby one person's use diminishes other people's use

8. private goods

goods that are both excludable and rival in consumption

9. public goods

goods that are neither excludable nor rival in consumption

10. common resources

goods that are rival in consumption but not excludable