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Chapter 16
Externalities are outcomes of economic activities that affect third parties who are not directly involved in it. These impacts can be either positive or ...
Private cost is the expenses a business incurs while producing a good or the price paid by an individual in purchasing a good. For example, consider a ...
Private costs and benefits are the financial impacts on individuals or businesses directly involved in a transaction. However, when an additional unit of ...
A negative externality is a cost suffered by an unrelated third party due to an economic transaction. The costs created by negative externalities are not ...
Positive externalities occur when a third party benefits from an economic transaction without being directly involved. Take vaccines as an example. When ...
Producing goods often results in pollution as a byproduct, but eliminating all pollution isn't practical. Doing so would mean halting the production ...
Price-modification policies can correct externalities. One such policy is Pigovian taxes, named after economist Arthur Pigou. Pigovian taxes are designed ...
In situations where positive externalities exist, governments often employ Pigouvian subsidies to adjust market prices. Pigouvian subsidies are financial ...
Quantity-based interventions aim to address externalities by directly controlling the amount of a good or activity. Quotas are a prime example of this ...
Pollution can be reduced using two main strategies: a quota on emissions or a tax on emissions. But which one is better? Take the steel industry. A quota ...
Governments frequently struggle to accurately estimate each firm's pollution reduction costs and set appropriate quotas or taxes. Tradable permits ...
In an imaginary town, Greendale, residents carelessly dispose of recyclable plastics due to minimal additional trash pickup fees, leading to recyclable ...
In the town of Greendale, tackling the recyclable plastic waste issue with price or quantity mechanisms, such as a disposal fee, quota, or disposable ...
The Coase Theorem states that costless negotiation among market participants will lead to an efficient market outcome regardless of who holds legal ...
Private goods are items that a person can buy and use, which then prevents others from using them. For example, a slice of pizza. It is a private good ...
Club goods are products that are excludable but non-rivalrous. This means that access to these goods can be restricted to certain people, but one ...
Public goods are mainly provided by the government because they benefit everyone and cannot be limited only to those who pay for them. Private companies ...
In finding the optimal level of public goods, consider national defense as an example. Suppose a nation has two individuals, John and Jane. The graph ...
The free rider problem occurs when some people benefit from resources or services without paying for them. This issue arises because public goods are ...
The tragedy of the commons happens when individuals use a shared resource selfishly, harming everyone's interest, including their own. Consider a ...
Property rights refer to the legal control individuals or entities have over resources. It includes the right to use, sell, or lease these resources. When ...
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