the additional cost imposed on society as a whole by an additional unit of pollution.

  is additional gain to society as a whole from an additional unit of pollution.

   is the quantity of pollution that society would choose if all the costs and benefits of pollution were fully accounted for.  (Figure 17-1)

  is an uncompensated cost that an individual or firm imposes on others. (Figure 17-2)

  a benefit that an individual or firm confers on others without receiving compensation

  even in the presence of externalities an economy can always reach an efficient solution as long as transaction costs—deal—are sufficiently low.

- Private Solutions to Externalities

 take external costs or benefits into account

 are rules that protect the environment by specifying actions by producers and consumers.

 is a tax that depends on the amount of pollution a firm produces. (Figure 17-3)

   takes designed to reduce external costs

Production, Consumption and Externalities—Private vs. Social Benefits

      (Figure 17-4)

   is a payment designed to encourage activities that yield external benefits.

   is an external benefit that results when knowledge spreads among individuals and firms

   a policy that supports industries believed to yield positive externalities.

 is equal to the marginal cost of production plus its marginal external cost. (Figure 17-5)

     a good is subject to a network externality when the value of the good to an individual is greater when a large number of other people also use the good.