CHAPTER EIGHT DWL proportional to the square of the tax DWL= fall in total surplus that results from a market distortion Laffer curve- demonstrates that even as DWL constantly increases, tax revenue first rises and then falls with an increase in the size of the tax THE GREATER THE ELASTICITIES OF SUPPLY AND DEMAND, THE GREATER THE DWL! FOR YOUR INFORMATION: Henry George= argued that gov't. should raise all of its revenue from a land tax! ----> In (European) countries with higher taxes, people tend to work less. U.S. on its way to following Europe because of Medicare and SS problems CHAPTER NINE if world price> domestic price---> export! Exporting leaves domestic consumers worse off *Trade raises economic well being b/c the gains of winners exceed the losses of the losahhhssss! Tariff- a tax on goods produced abroad and sold domestically *import quotas are much like tariffs except that a tariff raises revenue whereas an import quota creates surplus for those who get the licenses to import. They're even more similar if the government charges a fee for import licenses. Economies of scale - phenomenon in which goods can be produced at low costs only if they're produced in large quantities---> one of the advantages of international trade
Arguments against international trade (although economists believe that trade is usually best): 1. national-security - industry is vital for national security (i.e. Producing steel) 2. infant-industry - these industries will mature and be able to compete with foreign firms 3. jobs - trade destroys domestic jobs 4. unfair-competition - if different companies are subject to different laws and regulations, then it's unfair to expect firms to compete in the same marketplace 5. protection-as-a-bargaining-chip - trade restrictions can be useful when we bargain with out trading partners --->“unilateral”= drop your trade restrictions --->“multilateral”= keep trade restrictions as (political) bargaining chips UNIT FOUR: ECONOMIES OF THE PUBLIC SECTOR CHAPTER TEN internalizing the externality: altering incentives so that people take account of the external effects of their actions Coase theorem - the proposition that if private parties can bargain without cost over the allocation of resources, they can solve the problem of externalities on their own Why private solutions don't always work: 1. transaction costs – the costs that parties incur in the process of agreeing to and following through on a bargain Public policies toward externalities: 1. regulation 2. market-based policies: 3. a. taxes and subsidies 4. --->provide incentives!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! 5. ----> corrective taxes- tax designed to induce private decision makers to take account of the social costs that arise from a negative externality---->Pigovian 6. b. tradable pollution permits 7. ---> auction price would yield the appropriate size of the corrective tax CHAPTER ELEVEN RIVAL NONRIVAL EXCLUDABLE Private gummy worms ($1) Andrew's body Natural monopoly cable NOT EXCLUDABLE Common resources fish, preferably Public national
salmon/congested roads tragedy of the commons (ivory) defense/lighthouse basic research uncongested roads Free rider- person who receives the benefit of a good but avoids paying for it rivalry
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