Externalities Flashcards
1
Q
externalities
A
spill over effects from production and consumption for which no appropriate compensation is paid
2
Q
Gov policies to influence externalities
A
REGULATION :
- create competitive markets to protect interest of consumer so that they aren’t exploited by firms
- effective regulation leads to lower prices and greater choice
LEGISLATION :
- creating laws to protect individuals, firms and society
INDIRECT TAX :
- increase cost of supply ~ shift SC to left
- quantity supplied decrease, price increase
SUBSIDY :
- decrease in cost of supply ~ SC to right
- quantity supplied increase, price decrease
