External_Costs_and_Benefits

External_Costs_and_Benefits - External Costs and Benefits...

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External Costs and Benefits Environment Pollution Traffic
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External Costs Costs not compensated Social vs. private costs Supply curve is not the true social MC Equilibrium is not efficient Market clearing quantity exceeds efficient quantity Set tax = external cost Shift supply to make equilibrium efficient
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External Costs
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The Accident Externality One car drives through a green light One car drives through a red light $5,000 damage to each car Private cost = $5,000 Social cost = $10,000 External cost = $5,000 True for both drivers
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How much is it? Auto insurance = $100 billion per year Accident costs = $350 billion per year Including uninsured costs (deductible, drivers with no insurance, etc.) External cost depends on traffic density Between $1725 and $3239 in California Between $10 and $41 in North Dakota Great revenue potential with no DWB $220 billion nationally about half the defense budget
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Tax driving? Driving imposes external costs
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External_Costs_and_Benefits - External Costs and Benefits...

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