Public Goods And Externalities Flashcards
What are externalities
A cost that befalls a party not involved in a transaction
What are social costs
Private costs together with externalities
When should a transaction occur
When marginal costs and externalities are equal to marginal benefits
What is a pigou tax
A tax corresponding to the external marginal cost of pollution
What is the different effects if taxation and regulation when it comes to pollution
A tax sets the price if pollution and regulations determine the level of pollution
What is marginal abetment costs
MAC is the marginal cost of reducing polution
What do the acronyms MCP and MBP stand for regarding externalities
Marginal benefit and cost of pollution
What would happen if a tax is introduced and the real marginal abatement cost is higher than what is payed
The producer limits the emissions to the extent required which is less than expected
What happens if marginal abatement costs are higher than expected and the market has capped pollution lower than in reality
Producers will pollute as much as they are allowed to
What happens if MCP is higher than expected if there is a tax or cap on pollution
Nothing as it does not directly bother the producers
How does the MCP curve look if the cost is sensitive to changes in pollution
It is steep
Is an incorrect tax more or less deviation from the optimal level when the MCP curve is steep
More
Why may taxes be more efficient when producers have different costs of reducing emissions
If taxes are set on MAC those that can reduce for less do so while regulation would hurt those who cannot more
Does the distribution if property rights affect the equilibrium according to the coase theorem
No
What is the root cause that prevents equilibrium from being reached when there are externalities
Costs associated with trade and when property rights are not clearly defied. Does the farmer own the river that he needs to water his fields
What is the tragedy if commons
When something is over exploited because no one owns it but everyone uses it. A lumber company has no incentive to listen to the mushroom picking grandmother
What are pure public goods
Non-excludable so everyone may use it and non-rival so everyone can use it as much as they want
Are common goods rival
Yes, if some one uses it, it effects the ability for others to use it
Are club goods non-excludable and rival
No, everyone cannot use it but members usage does not affect the others
What is the optimal level produced if a public good
When aggregate marginal benefit equals marginal cost
What are the problems with public goods
If the marginal cost is increasing people might want to pay less than is required. freeloaders are incentivized ti take but not pay
