Externality: the uncompensated impact of one person’s actions on the well-being of a bystander Externalities and Market Inefficiency Negative Externalities Ex: aluminum factories emit pollution: for each unit of aluminum produced‚ certain amount of smoke enters atmosphere Cost to society of producing aluminum larger than cost to aluminum producers Social cost includes private costs of aluminum producers plus costs to those bystanders affected adversely by the pollution How can social planner
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market failures * Monopoly markets * Externalities * Public goods * Information asymmetry Externalities An externality is a by-product of consumption or production that affects someone other than the buyer or seller. Coase Theorem The Coase theorem states that – when side payments can be negotiated and arranged without cost – the private market will solve the externality problem on its own‚ always arriving at the efficient outcome. The allocation of legal rights determines gains
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References: Bennear‚ Lori. (Sep 5‚ 2011). Duke University. Fracking Externalities and the Coase Theorem. Retrieved from http://sites.nicholas.duke.edu/loribennear/2011/09/05/fracking- externalities-and-the-coase-theorem. Brown‚ Lester‚ Larsen‚ Janet‚ Fischlowitz-Roberts. (2002) Earth Policy Institute. Part 1 Assessing the Food Prospect: The Fast-Growing Water Deficit. Retrieved from http://www.earth-policy
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elements of the economic way of thinking in your analysis It is a real case of negative externalities both in consumption and production. production of alcohol causes pollution too. The two possible solutions suggested by economists are: Coase theorem-They can negotiate by themselves for compensation without any government intervention if the property rights are secured and the cost of negotiation is not high. Pigouvian- taxes or regulations. Drunk driving is included. An economist would increase
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Market Structure | NumberofSellers | TypeofProduct | BarrierstoEntry? | DemandCurve | Profit Maximization Condition | Perfect Competition | Many | Homogenous | No | Horizontal (perfectly elastic) | MR = MC | Monopoly | One | Unique | Yes | Downward Sloping | MR = MC | Monopolistic Competition | Many | Differentiated | No | Downward Sloping | MR = MC | Oligopoly | Few | Homogenous or Differentiated | Yes | Downward Sloping | MR = MC | The natural monopoly may be regulated through price‚ profit
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Describe and evaluate economic policy measures that can be used to reduce negative consumption and negative production externalities. Economic policy making is often a field of government decision-making or academia that is regularly filled with confusing terminology and definitions to the average person and thus somewhat confusing‚ this article looks at two of these such terms; ‘negative production externalities and negative consumption externalities’ and attempts to dissect their nature and
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according to figure 1.1 The market mechanism aim is to minimize the extent after point w1 to achieve the government’s choice of a social efficiency market. The market mechanism of extending private property rights by this we mean according to (Coase theorem) would have the effect of a socially efficient level of output being applied‚ shown by diagram 1.2. From the diagram we can establish that if the output is less than the point Q3‚ the marginal profit for the polluter will be greater than the
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Exam Name___________________________________ MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) Externalities A) cannot be expressed in dollar amounts. B) always make society better off. C) are always part of private costs or private benefits. D) always create extra social costs. E) can be either benefits or costs. Answer: E Topic: Externalities Skill: Level 2: Using definitions 1) 2) An example of a good with an external cost includes A)
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References: Coase‚ R.A.‚ (1960).‚ ‘The problem of social cost’‚ Journal of Law and Economics‚ Vol.3‚ pp.1-44. Collins‚ D.‚ and Lapsley‚ H.‚ (1997) ‘The economics of tobacco policy’ Available at: http://factsheets.globalink.org/en/economics.shtml. Goel‚ R.K.‚ (2006)
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Environmental Economics : Some Basic Concepts 1. Welfare economics Welfare economics is a branch of economics that uses microeconomic techniques to evaluate economic well-being‚ especially relative to competitive general equilibrium within an economy as to economic efficiency and the resulting income distribution. associated with it. It analyzes social welfare‚ however measured‚ in terms of economic activities of the individuals that comprise the theoretical society considered. As such
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