Final Study Guide

Final Study Guide - Taxes: 1. Lower quantity exchanged 2....

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Taxes: 1. Lower quantity exchanged 2. Puts a wedge between prices Market surplus= CS+PS Total Surplus= CS+PS+Gov rev(aka TxQ) -INELASTIC PAYS THE BURDEN OF THE TAX because they give a damn about getting a new heart International trade: - If world price is greater than domestic price, then you are an exporter o Vice versa
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EXTERNALITIES: uncompensated impact of one person’s actions on the well-being of a bystander - Can be positive of negative o Positive= research/innovation o Negative= pollution - Possible solutions: o Private solutions where exact payment per unit= exact benefit per unit Coase theorem= If 1. The property rights are defined and 2. There are no transaction costs, then the parties can reach a private solution o Public solutions: Command and control: gov regulates the Q produced Market based solutions Taxes= make negative externality producing firms take into account their actions o Sets the price for pollution Subsidies= provide incentives for positive externality producing firms to keep externalisizing Tradable pollution permits=sets the quantity of pollution o Is efficient because of the voluntary trade o Can be better than tax because it limits the total
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This note was uploaded on 11/21/2011 for the course ECON 221 taught by Professor Williamson during the Winter '05 term at Cal Poly.

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Final Study Guide - Taxes: 1. Lower quantity exchanged 2....

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