Unformatted text preview: 1) Impose a tax equal to the marginal external cost 2) Impose an emission charge equal to the marginal external cost This causes a shift of the supply curve to match the MSC curve. Equilibrium now equals efficient quantity. Since two factories (Oscar Mayer, which is polluting the water on the river, and Coors, which is using the now polluted water) a Coase Theorem: If the number of involved parties is small so that the transactions costs of reaching an agreement is small an d Marginal Social Benefit (MSB) = Marginal Benefit to the Consumer (MB) + Marginal External Benefit D = MB, MSB is higher than D, producers will produce at equilibrium, but the efficient amount is at the intersection of MSC an d The Coase Theorem could apply here. Government could also intervene: 1) Subsidy (losers cost for producers so increases supply) 2) Voucher (lowers cost for consumers so increases demand)...
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- Summer '08
- Rush
- Microeconomics, Externalities, Supply And Demand, Externality, marginal social cost, marginal external cost, MC MSC
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