markets, contracts and information Flashcards
external cost d
negative external effect on another person or people who are external to the market transaction
where does the msc curve go for a negative effect
above the marginal private cost line
where is the pareto efficient outcome with msc and mpc
where price equals msc
how do you show the gains and losses when output is reduced in a negative external cost situation
loss of profit is the loss of consumer surplus,
net social gain is the area above the horizontal price curve and under the msc
what are some problems associated with solving negative externalities
missing information,
enforcement,
limited funds
what are ways to solve negative externalities
regulation of amount produced,
taxation,
enforcing compensation
if they taxed a negative externality at what point output would it happen and what price
where msc equals price and the tax is equal to the vertical distance between the mpc and the msc
how much compensation would be paid if there was a negative externality
where msc equals price and then the area down between the msc and mpc
what is coasian bargaining
bargaining between the polluters and victims to settle negative externalities,
need legal framework to ensure contracts are kept
missing market d
market which there is some kind of exchange that would be mutually beneficial but this does not occur due to asymmetric or non-verifiable information (can’t use a contract)
public good d
good for which use by one person does not reduce its availability to others
examples of public goods
knowing the time of day,
public broadcasts
positional goods d
good for which one person having more necessarily implies another having less
asymmetric information d
information that is relevant to the parties in an economic interaction, but is known by some but not by others
