econ 2005, fall 2014, Powerpoint slides for ch17- externalities and the enviroment

Econ 2005, fall 2014, Powerpoint slides for ch17- externalities and the enviroment

This preview shows 1 out of 9 pages.

Chapter 17: Externalities and the Environment William A. McEachern
Image of page 1

Subscribe to view the full document.

Resources Exhaustible resource A resource in fixed supply Renewable resource A resource that regenerates itself Can be used indefinitely if used conservatively
Image of page 2
Renewable Resources Open-access resources (atmosphere, waterways, wildlife, …) Rival in consumption and nonexclusive Subject to the common-pool problem No private property rights Negative externalities arise Common-pool problem People exploit a resource Personal marginal benefit > personal marginal cost Personal marginal cost Ignores costs imposed on others
Image of page 3

Subscribe to view the full document.

Resolving Common-Pool Problem Government regulation (when property rights are too costly) Output restrictions Taxes Use resource: socially optimal rate Improve allocative efficiency
Image of page 4
Optimal Level of Pollution External costs with fixed technology Fixed-production technology Cut emissions: cut production Marginal social cost Marginal private cost Marginal external cost
Image of page 5

Subscribe to view the full document.

Optimal Level of Pollution Socially efficient production Demand (marginal benefit) intersects marginal social cost curve Government regulation Limit production Tax = marginal external cost Marginal social cost = marginal benefit Total social gain Total social cost (firms ignore external cost)
Image of page 6
Negative Externalities: The Market for Electricity in the Midwest 0.10 $0.14 Dollars per kilowatt-hour Marginal social cost 35 0 Millions of kilowatt-hours of electricity per month 50 Marginal private cost D a c If producers base their output on marginal private cost, 50 million kilowatt-hours of electricity are produced per month. The marginal external cost of electricity is the cost of pollution imposed on society. The marginal social cost curve includes both the marginal private cost and the marginal external cost. If producers base their output decisions on marginal social cost, only 35 million kilowatt-hours are produced, which is the optimal output. The total social gain from basing production on marginal social cost is reflected by the blue-shaded triangle. Total social gain b
Image of page 7

Subscribe to view the full document.

Optimal Level of Pollution External costs with variable technology Variable technology Reduce emissions: alter the production process Cleaner technology Production of cleaner air Diminishing returns
Image of page 8
Image of page 9
You've reached the end of this preview.
  • Fall '07
  • Zirkle
  • Economics, Externalities, Greenhouse gas emissions, Externality, Marginal social benefit, marginal social cost

{[ snackBarMessage ]}

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern