Chapter 5 Flashcards
What are common pool resource
rivalrous but non-excludable resources.Rivalry means that the use of resource reduced availability for others .
Non excludability means that the use of the resource is abundanct and without restrictions
Explain the tragedy of the commons
is a story about cattlle that fed on a fertile pasture that is owned in common by a group of herders
At start,everyone had a small herd and plenty of space for them to feed
But as the cattle increased, the pasture became overfilled and the cattle had to compete for food which was becoming more and more scarce
In the end the grass was gone,soil was eroded and could no longer be used for grazing
Illustrate graph of sustainable and unsustainable use of resources
pg. 145
Define market faliure
refers to the faliure of the market to allocate resocurces efficiciently, resulting in allocative inefficiency
Define externality
Occurs when the actions of the consumer or producer have an impact on other poeple who were not part of the transaction,and whose interests are not taken into consideration
What is Negetive production externality
free market overallocate resources to the production of the good and too much of it is produced reletive to the social optimum
Qm>Qopt and MSC>MSB
Illustrate
- negetive production externality graph
- Wellfare loss in negetive production externality graph
Pg.
150
151
Policies to correct NPE and overuse of common pool resources with graphs
- Market based policies (Pg,153)
- Indirect taxes
- Carbon taxes
- Tradable permits - Government Legislation and regulation (pg.158)
3.Collective self governance
4.Education and awerness
Advantages of market based policies
-internalize the externality
-taxes on emmision are superior to taxes on output
-lower polluting levels
-creates incentives for firms to cut back on pollution
Disadvantages of mrket based Policies
Taxes
- not practical (tax= value of ammount of pollution created)
- carbon tax are set too low to make actual impact since it is pollicitally difficult to do so
Tradeable permits
- technical difficulties
- ‘favratism’ tends to occur when handing out permits
Advantages of Government legislation and regulation
- simple to put in effect
-more regulation complies and reduced harmful impacts - avoids technocal difficulties
disadvantages of Government legislation and regulation
- dont offer incentives and result in higher overall cost
- costs of monitoring and supervising lead to opportunity costs in the givernment budget
Advantages of collective self governance
- cooperaive solutions handy in private owenership
Disadvantages of collective self governance
- for people to manage they must be able to communicate effectively and create boundaries for resources which is difficult (for resources like oceans)
Advantages of Education and awerness
- firms will do anything to keep customers happy ;bringing change
Disadvantages of Education and awerness
-cannt generate large scale impact
- if it is a necesarry good people will consume no matter what
What is negetive consumption externality
free market overallocate resources to the production of the good and too much of it is produced reletive to the social optimum
Qm>Qopt and MSC>MSB
Illustrate
-negetive consumption externality graph
- Wellfare loss in negetive consumption externality graph
Pg.
165
166
Policies to correct NCE
with graph
- Market-based policies (inirect tax)(pg. 167)
2.Government legislation and regulation (pg.167)
3.Education and awareness
4.Nudges
Advantages of Market based policies
- preffered by economists sice they incentivise consumers to change consumotion patterns
Disadvantages of Market based policies
-inabilty to measure external costs= unequal tax
- many goods have inelastic good resulting in a more expensive consumption
Advantages of Government legislation and regulation
- dont limit consumer activities
disadvantages of Government legislation and regulation
- cannot be applied to al goods
Advantages of Education and awaerness
- simpler than other meathods
Disadvantages of Education and awaerness
- less funds avalable elsewhere
Advantages of nudges
- simple and does not require much effort
Disadvantages of nudges
- same nudge may not have common impact on the enetire scociety (inefficient)
