Externalities Flashcards
What is an externalities
uncompensated impact of someone on a bystander’s well-being
What happen in the negative consumption graph?
the Demand decrease
where does the dead-weight loss point towards?
the sided-triangle point towards P2
What does pigovian taxes do
eliminate the dead-weight loss
What are characteristic of monopolistic competition?
-lot of competitor
-easy to enter/exit
-differentiated product, but similar
how does Pigovian taxes work?
ex: taxes the same amount done in harm for the environment for every unit produced
What are solution for externalities
Market-based solution, taxes and permit
Why is taxes better than pollution permit?
the gov make money only once by selling the permit, but with taxes, the gov can make more money and reinvest it
What are market-based solution?
taxes and subsidies
What to do with climate change/environment in practice
increase tax on carbon
What do externalities cause markets to do?
fail to allocate ressources efficiently
