ECON201 Flashcards
externalities
markets are usually a good way to organize economy activities
negative externalities
impact on the bystander is adverse
market failures
1)externalities (CH 10)
2)monopolies (CH 15)
3)public goods x common resources (CH 11)
negative externalities
impact on the bystander is adverse
demand curve shows private value
the value to buyers
demand curve shows private value
the value to buyers
supply curve shows private cost
the cost directly incurred by sellers
supply curve shows private cost
the cost directly incurred by sellers
Social cost =
Private cost+external cost
external cost
=value of negative impact on bystanders
Positive externalities
the social value of a good includes:
private value- the direct value to buyers
external benefit- the value of positive impact on bystanders
ex: vaccines, research and development create knowledge others can use
public policies toward externalities
command-and-control policies
regulate behavior directly
market-base policies
incentives so that private decision makers will choose to solve the issue on their own
coase theorem
- small number of individuals
- low/insignificant costs
- equal bargaining power
private good
excludable and rival in consumption
public good
not excludable and not rival in consumption
common resource
not excludable but rival in consumption
club goods
excludable but not rival in consumption
free rider
use good but not pay; reduce revenue
is there a lot of common resources
no
is there a lot of public goods
yes
the laffer curve
shows the relationship between the size of the tax and the tax revenue
Pretax (total surplus)
CS+PS
After tax (total surplus)
CS+PS+Government Revenue
Tax
PB-PS
