cannot resolve

market failure When the market on its own does not allocate resources efficiently in a way that balances

social costs and benefits; externalities are one example of a market failure

marketable permit program a permit that allows a firm to emit a certain amount of pollution; firms with

more permits than pollution can sell the remaining permits to other firms

negative externality a situation where a third party, outside the transaction, suffers from a market

transaction by others

pollution charge a tax imposed on the quantity of pollution that a firm emits; also called a pollution tax

positive externality a situation where a third party, outside the transaction, benefits from a market

transaction by others

property rights the legal rights of ownership on which others are not allowed to infringe without paying

compensation

social costs costs that include both the private costs incurred by firms and also additional costs incurred by
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