Econ Week 14

Public Goods Solution

- Government coercion (taxes) - Privileged group benefits (hegemon) - norms

nonrival

A good, service, or resource is nonrival if its use by one person does not decrease the quantity available for someone else.

Market outcome is efficient

No deadweight loss Social welfare (CS+PS) is macimized Marfingal value = Marginal cost

Sources od market ineggiciency

Uncertainty (o misinformation) Externality Public Goods

emissions fee

charge levied on each unit of a firm's emissions

To achieve the optimal level of emissions, a government could set an emissions standard at the quantity

where the marginal external cost curve intersects the marginal cost of abatement curve.

Marginal Social Cost equation

MSC = MC (or Supply) + Marginal external cost

Marginal Social Cost (MSC)

TRUE MC OF PRODUCTION The total cost to society of producing an additional unit of a good or service. MSC is equal to the sum of the marginal costs of producing the product and the correctly measured damage costs involved in the process of production.

postive externality

an externality that benefits people who were not involved in the original economic activity price to high

nonexcludable

when it is costly or impossible to exclude someone from using the good, and thus hard to charge for it

marginal external cost

Change in total cost incurred by households or firms, associated with a unit-change in the consumption or output of other households or businesses.

marginal external benefit equation

Demand + MEB

emission standards

Regulations for restricting the amounts of air pollutants that can be released from specific point sources.

Rival vs. Non-rival

Rival: if consumption by one person diminishes the quantity of the good available for others to consume Non-Rival: if consumption by one person does not diminish the quantity of the good available for others to consume.

negative externalities solutions

S= margninal ecternal cost (upward sloping D= marginal cost of abatement (high caluaiton to first unit of pollution because it is enormouslu costly ro elliminate all pollutinon) Policies: Tax Emission standard Emissions Fee tradeable emissions permits

Suppose a graph showing the marginal external cost curve and marginal cost of abatement curve of emissions indicates that an emissions fee of $10/unit will lead to the optimal level of emissions. If the government sets an emissions fee of $5/unit, emissions will

be above the optimal level, but will be curtailed relative to the level that would arise with no fee.

When emissions are measured on the horizontal axis, the marginal cost of abating emissions is

downward-sloping because a high level of emissions is cheap to attain, and a low level of emissions is expensive to attain.

negative externality

harmful side effect that affects an uninvolved third party (products that cose pollution) price too low and too much is sold

tradeable emissions permits

licenses to emit limited quantities of pollutants that can be bought and sold by polluters

optimum level of pollution

marginal external cost equals the marginal cost of abatement.

public goods requirments

nonrival and nonexcludable

marginal external benefit

the addition to external benefits created by one more unit of the good

private benefit

the benefit received by the consumer of a good or service

private cost

the cost borne by the producer of a good or service

Externality

the cost or benefit that affects a party who did not choose to incur that cost or benefit