Lecture 14

Lecture 14 - Chapter 15 Externalities C Dealing with...

Info iconThis preview shows pages 1–3. Sign up to view the full content.

View Full Document Right Arrow Icon
1 Chapter 15: Externalities C. Dealing with externalities 1. Property rights and the Coase Theorem 2. Taxes on activities with negative externalities 3. Subsidies for activities with positive externalities Question: How can a subsidy improve efficiency if a subsidy costs more than it’s worth? In absence of external benefits, a subsidy costs the taxpayers more than it benefits quantity $/unit private demand social marginal cost (= private MC) cost with subsidy amount of subsidy quantity purchased with subsidy consumer surplus before subsidy additional consumer surplus after subsidy quantity purchased with no subsidy In absence of external benefits, a subsidy costs the taxpayers more than it benefits quantity $/unit private demand social marginal cost cost with subsidy amount of subsidy quantity purchased with subsidy benefit of subsidy cost of subsidy In presence of external benefits, a subsidy costs the taxpayers less than it benefits quantity $/unit private demand social marginal cost amount of subsidy quantity purchased with subsidy social demand external benefits consumer plus external surplus before subsidy
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
2 In presence of external benefits, a subsidy costs the taxpayers less than it benefits quantity $/unit private demand social marginal cost amount of subsidy quantity purchased with subsidy private benefit of subsidy cost of
Background image of page 2
Image of page 3
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 03/21/2009 for the course ECON 2 taught by Professor Kim during the Spring '08 term at UCSD.

Page1 / 6

Lecture 14 - Chapter 15 Externalities C Dealing with...

This preview shows document pages 1 - 3. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online