Externalities and public goods Flashcards
What is an externality?
occurs when a person’s wellbeing or firm’s production capability is directly affected by the non-price actions of other consumers or firms
What do negative externalities do?
Harm others
Firms and consumers don’t have to pay for negative externalities, so there are:
Excessive amounts
What is the primary result of externalities?
Nonoptimal production
What is the public cost?
Private cost plus the cost of harms from externalities
What is a government limit on the amount of pollution that may be realeased called?
Emissions standard
What is a government limit on the amount of pollution that may be released called?
Emissions standard
A tax on air pollution is called an:
Emissions fee
What is a tax on discharges into air or waterways called?
Effluent charge
What does an emissions fee force a firm to do?
Internalize the externality
what externality relevant level does a monopoly produce at?
Intersection of MR and privte MC
With monopoly, Welfare is always…?
Lower
What is a property right?
An exclusive privilege to use an asset
What does the Coase theorem state?
Optimal levels of pollution and output can result from bargaining between polluters and their victims
What is a common externality with open access common property?
Overuse
What are examples of open access common property?
- Parks or pools with free entry
- The internet
- Roads
- Common grazing areas for animals
What are 2 ways doe deal with overuse of common property?
- Apply a tax or fee
- Restrict access to the resource
- Assign private property rights
What is a public good?
A commodity or service whose consumption by one person doesn’t stop others from consuming it
The social demand curve for a public good is:
Vertical
What is the main problem with public goods?
Free riders
What are 4 ways free riding can be reduced?
- Social pressure
- Firms merging
- Privatisation
- Compulsion through taxes
