Lec_12_solving_externalities

Lec_12_solving_externalities - Rough grading scale for...

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1 Rough grading scale for first exam: • A: 85-100 • B: 72-84 • C: 55-71 • D: 40-54 • F: below 40 • average score on first exam: 67 • Next week’s discussion sections (Oct 28 - Nov 2) will review Problem Set 3: – Chapter 10, pages 290-291: problems 1 and 2 – Chapter 11, pages 320-322: problems 3, 4, 8, and 9 Chapter 11: Externalities and Property Rights A. External costs B. External benefits C. Negotiation and the Coase Theorem D. Using taxes to internalize negative externalities Using a tax to correct a negative externality Total miles driven in San Diego per Year (billions of miles) Cost (cents per mile) demand private MC (if no tax) 30 10 social MC 33 9 3¢/mile tax social MC = private MC (if there is tax) people would choose to drive 9 billion miles if there was a tax Chapter 11: Externalities and Property Rights A. External costs B. External benefits C. Negotiation and the Coase Theorem D. Using taxes to internalize negative externalities E. Using subsidies to internalize positive externalities Using a subsidy to correct a positive externality Quantity $/unit private demand (if no subsidy) marginal cost external benefit social demand privately chosen quantity socially desired quantity set subsidy = external benefit social demand = private demand (if there is a subsidy) people would choose socially desired quantity if there is a subsidy Examples of potentially useful subsidies: (1) Recycling aluminum cans (2) Public transportation
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2 (3) Basic scientific research private benefit: researcher may enjoy research, may obtain patent, university gains prestige and students external benefit: research may inspire other discoveries for which others receive patent
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Lec_12_solving_externalities - Rough grading scale for...

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