Intro to Microeconomics_Agnello_Date_041310

Intro to Microeconomics_Agnello_Date_041310 - At...

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- Proportional tax: Same average tax rate for all income - Regressive tax: lower average tax rate for higher income - Progressive tax: higher average tax for higher income - Average tax rate: AR - Marginal tax rate: MR Chapter 10 Externalities - Interfere between law and economics - Markets sometimes fail to achieve efficiency (i.e optimal Q) - Exception and not the rule - Government can help out Externalities - spill over effects on people other than the supply and demand participants Bystanders affected by costs/benefits from a market but not represented by decision makers of market Buyers = demanders Sellers = suppliers Free markets will ignore the bystanders and thus will over or under produce - inefficient Q equilibrium With no externalities equilibrium is socially optimal (efficient)
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Unformatted text preview: At equilibrium: value = marginal cost and CS and PS are maximized Fig. 1 revenue CS + PS optimized With externalities equilibrium is not optimal Marginal value for all does not equal marginal cost for all (i.e. including the bystanders) First - Negative externalities e.g. barking / littering dogs Crying / rowdy children Air / water pollution from firms Driving - air pollution to society, congestion to others, pedestrian danger Forces on air / water pollution Supply does not reflect all costs (pollution spills over, costs bystanders in the rest of society) Supplier recognizes only private costs and not external pollution costs Social cost > private cost Free market over producers equilibrium market Q too high - inefficient...
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This note was uploaded on 08/30/2010 for the course ECON 151 taught by Professor Harris during the Spring '07 term at University of Delaware.

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