Chapter 10

Chapter 10 - Industry policy : to subsidizes the industry...

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Chapter 10: Externalities PG6 - Inefficient allocation of resources; due to the inaccurate reflection of the “real price” Negative externalities of production = increase of social cost, makes supply @ point a (cost>benefit) detrimental
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If tax shifts supply curve to social cost curve, then tax internalize the externality , gives them an incentive to min. negative externality/ max. positive externality. These taxes are known as Pigovian taxes. *tax imposed on society w/ market failure can improve social outcome Technology spillover : pos externality from tech. advancements
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Unformatted text preview: Industry policy : to subsidizes the industry with the biggest spillover *patents/property right gives firms incentive Solve inefficiency by internalizing the externality or through contracts Doesnt work due to transaction costs ex. Lawyer fees Hard to agree: especially if more people are involved Command and control policy: direct regulation Pigovian tax = increases efficiency / closer to social optimum + gov revenue + provides incentive to be more efficient ex. Reducing pollution Pollution permits might be better than taxes...
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Chapter 10 - Industry policy : to subsidizes the industry...

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