Unit 8 ap micro
What are three ways that we can induce people to internalize external costs?
-tax or otherwise regulate the use of the common resource -create a system of tradable licenses for the right to use the common resource -make the common resource excludable and assign property rights to some individuals
How do you determine how much of a public good to provide?
-through voluntary contributions -supplied by self interested individuals -some are deliberately made excludable
Why are emission taxes and efficient way to reduce pollution?
Ensures that the marginal benefit of pollution is equal for all sources of pollution
Coase theorem
Even in the presence of externalities an economy can always reach and efficient solution as long as transaction costs are sufficiently low
What is marginal cost pricing?
Occurs when regulators set a monopolies price equal to its marginal cost to achieve efficiency
Means tested programs
Only provide aid to those in property
In the case of a common resource, the market tends to...
Over-consume the good because the good is nonexcludable but rival in consumption
What should a policy makers do to encourage the consumption of an activity that generates positive externalities?
Place a subsidy per unit of the good consumed
Non-means tested programs
Provide benefits to everyone
For a market to efficiently deliver a good, the good must be...
Rival in consumption and excludable
Poverty rate
The percentage of the population with incomes below the poverty threshold
The free rider problem is associated with...
The production of public goods
Rival in consumption
The savior of the good cannot be consumed by more than one person at the same time
When a good is nonexcludable, the market produces...
Too little of the good
Internalize the externality
When individuals take external costs or benefits into account
Nonexcludable good
When the supplier cannot prevent consumption by people who do not pay for it
Excludable good
When the supplier of that good to prevent people who did not pay from consuming it
Economic functions of gov.
-enforcing laws and contracts -providing public goods -correcting market failures
Causes of poverty
-lack of education -lack of proficiency in English -racial/gender discrimination -bad luck
What were the two important provisions of the Sherman antitrust act?
-make it illegal to create a contract, combo or conspiracy that restrains interstate trade -outlaw the monopolization of any part of interstate commerce
Government can reduce income inequality by doing...
-provide transfer payments to the poor -directly influence market prices, such as establishing a minimum wage -tax high-income earners at a higher rate than low-income earners
External benefit
A benefit that an individual or a firm confers on others without receiving compensation
What is the gini coefficient
A number that summarizes a county's level of income inequality based on how unequally income is distributed
Pigouvian subsidy
A payment design to correct for the tax of external benefits
Negative income tax
A program that supplements the income of low income workers
Pigpuvian tax
A tax that is designed to reduce external costs
Economic insecurity
Afflictions on a family's income
What does gini of 1 mean
All county income went to 1 person
Poverty threshold in 2014
Alone-11,670 Family- 23,850
External cost
An uncompensated cost that an individual or a firm imposes on others
Non-rival in consumption
If more than one person can consume the same unit of the good at the same time
Characterization of a public good
If one person uses the good, it does not prevent others from using it
Free rider
Individuals have no incentive to pay for their own consumption and instead will take a free ride on anyone who does pay
When a gov. Issues tradable pollution permits...
It effectively creates a market for the right to pollute
How does tradable emissions permits work?
Licenses to emit limited quantities of pollutants that can be bought and sold by polluters
What is average cost pricing?
Occurs when regulators set a monopolys price equal to its average cost to prevent the firm am incurring a loss
Economists position on allocating resources to control pollution
Pollution should be reduced to the point where the marginal social cost of pollution control equals the marginal social benefit of pollution control
What four specific behaviors were outlawed by the clayto antitrust act
Prices discrimination, anti-competitive practices, anti-competitive mergers/acquisitions and interlocking directorate
The market system fails to produce public goods because...
Private firms cannot restrict the benefits of such goods only to consumers who are willing to pay for them.
What did the Federal Trade Commission act of 1914 do?
Prohibits unfair methods of competition in interstate commerce and created the federal trade commission to enforce the act
Environmental standards
Rules that protect environment by specifying limits for or actions by producers and consumers
What does the Lorenz curve show
Shows the percentage of all income received by the poorest members of the population
Marginal social cost of pollution
The additional cost imposed on society as a whole by an additional unit of pollution
Marginal social benefit of pollution
The additional gain to society as a whole for an additional unit of pollution
Thr optimal amount of pollution is...
The amount where the marginal social benefit of thr pollution equals the marginal social cost of the pollution.
Poverty threshold
The annual income below which a family is officially considered poor
Transaction costs
The cost to individuals making a deal
What is the problem with environmental standards
They are inflexible and don't allow reductions in pollution to be achieved at the lowest possible cost
When the consumption of a good generates positive external benefits, the market tends to produce...
Too little of the good
If the production of a good creates a positive externalities, the private market will produce...
Too little of the good at too high a price
If the production of a good creates negative externalities, the private market will produce...
Too much of the good at too low a price
Network externality
When the value of the goods for an individual depends on how many other people also use the good