Negative Externalities 1.3.2

Question 1

Social Costs Formula

Answer 1

Private costs + External costs

Question 2

Social Benefits Formula

Answer 2

Private Benefits + External Benefits

Question 3

Welfare/Net benefit Formula

Answer 3

MSB - MSC

Question 4

Where is the social equilibrium located

Answer 4

MSB = MSC

Question 5

What is used to solve negative externalities

Answer 5

Indirect taxes
Minimum Price
Regulation

Question 6

What size indirect tax will the government introduce in order to solve negative externalities

Answer 6

The size of the external costs at the social equilibrium

Question 7

How does the cap and trade system work

Answer 7

Government sets a cap on pollution yearly (socially efficient) - divides tradeable pollution permits till cap is reached

Question 8

Tradeable pollution permit Cons

Answer 8

Costly
Hard to set cap at Right level
International Market Failure

Question 9

Cons of Minimum price

Answer 9

Depends on PED
Promotes inequality
Firms may leave
Hard to set right price