Micro Chapter 10 【Externalities】

1. Externalities - Definition and examples (two versions: Adverse/Beneficial)
An externality arises when a firm or person engages in an activity that affects the well-being of a third party, yet neither pays nor receives any compensation for that effect. If the impact on the third party is...

Adverse:

Beneficial:

2. Efficiency in the presence of externalities
... confer many external benefits on society... Use the black point (plus symbol) to indicate the market equilibrium quantity. Next, use the purple point (diamond symbol) to indicate the socially optimal quantity.

3. The effect of negative externalities on the optimal quantity of consumption
Consider the market for...dumps toxic waste into a nearby river, creating a negative externality for those living downstream from the plant. Producing an additional ton of steel imposes a constant external cost of...


4. Understanding different policy options to correct for negative externalities
Carbon dioxide emissions have been linked to... The following table lists some possible public policies aimed at reducing the amount of carbon dioxide in the air.


5. Correcting for negative externalities - Regulation versus tradablepermits
Suppose the government wants to reduce the total pollution emitted by three local firms. Currently, each firm is creating 4 units of pollution in the area, for a total of 12 pollution units. If the government wants to reduce total pollution in the area to 6 units, it can choose between the following two methods

6. Achieving lower pollution
Suppose the government decides to raise the gasoline tax as a way to reduce airncy (EPA) wants to mandate that all methane emissions must be reduced to zero in order to alleviate global warming in the United States.

7. Correcting for negative externalities - Taxes versus tradablepermits
Given that the appropriate policy (tradable permits or corrective taxes) can depend on the available information and the policy goal, consider the following scenario..

8. The effects of property rights on achieving efficiency
the tannery's profit is $2,000 per week and the resort's profit is $1,900 per week. If the tannery does not use the recycling method, the tannery's profit is $2,300 per week and the resort's profit is $1,500 per week...

9. Private solutions to correct for externalities
Suppose that a chicken farm uses a nearby stream to dispose of the wastes released by its chickens. These wastes flow downstr...Suppose that Teresa has just finished smoking a cigarette and is thinking about throwing the cigarette butt onto her neighbor Sam's driveway. Although no police...