Chapter 5: Ethics Flashcards
External effects what are they
Secondary effects or results of a product that was not intended
Like abuse of pills
Welfare economics
Assesses how well the economy allocates its scare resources
Checks if it is efficient and equitable
Efficiency in economy
How well resources are used and allocated
Equity in economic
How society’s goods and rewards are, and should be distributed
Have to make sure the least people are disappointed
Also concerned with how different generations share economic capabilities
Consumer surplus
Demand side of market
The amount ons willing to spend above the equilibrium price
Distance between market price and individual valuation
Producer (supplier) surplus
Supply side of market
The amount one is willing to sell below equilibrium price
Excess of market price over the reservation price
Reservation prices
Minimum price that suppliers willing to accept
Suppliers will hold back if market price isn’t higher than reservation price
Total surplus in market
Sum of all participant’s surpluses
Efficient market
Maximizes sum if consumer and supplier surpluses
Tax wedge
Difference between consumer and producer prices
Revenue burden
Amount of tax revenue raised by a tax
Excess burden (deadweight loss)
Second burden of tax
Consumer and supplier surpluses forming a net loss to the economy
Distortions
Impact of taxes that make that economy resources indefinitely used
Lead economy away from efficient output
Ressource allocation
Externalities
Impacts individuals who are not in the market in question
The effects of externalities may not be captured in the market price
Can creat a difference between private costs or values and social costs or values
Markets characterized by externalities are not efficient
Creates divergence between private costs/benefits and social costs/benefits
Corrective tax
Seeks to to direct the market towards a more efficient output
Reduce taxes in one part to increase in another
Some revenue to big g
Positive externalities
Individuals or producers get a free ride on the efforts of others
Sometimes, can be so gyu Big G will make sure prices is at 0, like malaria vaccinations
Patent laws
Prevent competitors from copying the product development of firms thats invest in Research and Development
Without this, no investment in R & D which is crucial to eocnomy
Subsidies
Can be thought of as negative tax
Can stimulate supply of goods and services to have positive externalities
Public goods
Many individuals can be supplied with the same good at the same total cost as oneindividual
International externalities
Cannot be corrected by national Big G
Greenhouse gases consequences
Massive global warming
Strongly correlated with economic growth
Know as common property
Common property
Every citizen in the world owns them
Marginal damage curve
Cost to society of an additional unit if pollution
Marginal abatment curve
Cost of reducing emissions by one unit
Optimal quantity of pollution
Marginal cost of abattement equals marginal damage
What are tradable permits and corrective/carbon taxes
Market bases systems aimes at reducing GHGs
What if all firms have the same GHG limits, what can they do to make it beneficial?
The one who has more cost in reducing can pay the one who is less costly if its beneficial
Tradable permits
Limits or caps the total permissible emissions
Stills allows market to develop
Benefits the market to reduce emissions at the least cost
No revenue to Big g
