Chapter 10 Externalities

Chapter 10 Externalities - 6 Regulation(Absolute limits...

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Chapter 8: Application: The Costs of Taxation Page 1 of 6 The uncompensated impact of one person’s actions on the well being of a bystander. Examples: Negative externalities Positive externalities Suppose you are trying to decide how much beer to buy and each beer costs $2 MB from 1 st 5 beers are: $3, $2.50, $1.25, $0.50, and $0.10 How many do you buy _________________& Your Bill is $_______________ Suppose you split the bill 10 ways:__________________ I. Externalities
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Page 2 of 6 Negative externalities lead markets to ______produce than is socially desirable B) Negative Externalities
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Page 3 of 6 Negative Ext. Markets to OVER produce – So Pigouvian Taxes restores efficiency B) Pigouvian Taxes: Internalize the externality : altering incentives so that people take account of the external effects of their actions
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Page 4 of 6 Positive externalities lead markets to _______produce than is socially desirable Pigouvian Subsidy encourages more of that activity by lowering the price
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Unformatted text preview: 6 Regulation (Absolute limits) versus Cap and Trade Prior to Regulation: Market left to its own devices Company A 600 tons Company B 600 tons of Emissions New Company – New Tech Company B old Company – Old Technology Regulation: no more than 300 from each company = 600 Tons total Company A ____ tons Company B _____ tons of Emissions Equitable? Cap and Trade: Tradable Permits : licenses to emit a limited number of pollutants that can be bought and sold by polluters Assume that the Gov’t hands out 600 permits. 1 permit for each ton of emissions. Company A ____ tons Company B _____ tons of Emissions Chapter 8: Application: The Costs of Taxation Page 6 of 6 Private Solutions & the Coase Theorem: Example: Restaurant - 2 people Smoker Sam and Non Smoker Nancy Should the smoker have to stop smoking? No Policy Non- Smoking Policy Smoker Sam gets $5 of benefit Smoker Sam gets $5 of benefit Nancy bears cost of $7 Nancy bears cost of $7 Efficient outcome Efficient Outcome...
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This note was uploaded on 12/05/2011 for the course ECON 101 taught by Professor Dezhbakhsh during the Fall '07 term at Emory.

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Chapter 10 Externalities - 6 Regulation(Absolute limits...

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