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