Скачать презентацию Externalities CHAPTER 9 CHAPTER CHECKLIST When you Скачать презентацию Externalities CHAPTER 9 CHAPTER CHECKLIST When you

ff0af2356694d40c889ddfe7d7921459.ppt

  • Количество слайдов: 40

Externalities CHAPTER 9 Externalities CHAPTER 9

CHAPTER CHECKLIST When you have completed your study of this chapter, you will be CHAPTER CHECKLIST When you have completed your study of this chapter, you will be able to 1 2 Explain why negative externalities lead to inefficient overproduction and how property rights, pollution charges, and taxes can achieve a more efficient outcome. Explain why positive externalities lead to inefficient underproduction and how public provision, subsidies, vouchers, and patents can achieve a more efficient outcome.

EXTERNALITIES IN OUR DAILY LIVES An externality is a cost or a benefit that EXTERNALITIES IN OUR DAILY LIVES An externality is a cost or a benefit that arises from: • Production that falls on someone other than the producer • Consumption that falls on someone other than the consumer Negative externality A production or consumption activity that creates an external cost. Positive externality A production or consumption activity that creates an external benefit.

EXTERNALITIES IN OUR DAILY LIVES Four types of externalities: • Negative production externalities • EXTERNALITIES IN OUR DAILY LIVES Four types of externalities: • Negative production externalities • Positive production externalities • Negative consumption externalities • Positive consumption externalities

EXTERNALITIES IN OUR DAILY LIVES <Negative Production Externalities Pollution is the major example of EXTERNALITIES IN OUR DAILY LIVES

EXTERNALITIES IN OUR DAILY LIVES <Negative Consumption Externalities Smoking tobacco in a confined space EXTERNALITIES IN OUR DAILY LIVES

9. 1 NEGATIVE EXTERNALITIES <Private Costs and Social Costs Marginal private cost The cost 9. 1 NEGATIVE EXTERNALITIES

9. 1 NEGATIVE EXTERNALITIES Marginal social cost The marginal cost incurred by the entire 9. 1 NEGATIVE EXTERNALITIES Marginal social cost The marginal cost incurred by the entire society—by the producer and by everyone else on whom the cost falls. Marginal social cost (MSC) is the sum of marginal private cost (MC) and marginal external cost. MSC = MC + Marginal external cost

9. 1 NEGATIVE EXTERNALITIES Figure 9. 1 shows the relationship between cost and output. 9. 1 NEGATIVE EXTERNALITIES Figure 9. 1 shows the relationship between cost and output. When output is 4, 000 tons of chemicals a month: 1. Marginal private cost is $100 a ton. 2. Marginal external cost is $125 a ton. 3. Marginal social cost is $225 a ton.

9. 1 NEGATIVE EXTERNALITIES <Production and Pollution: How Much? When an industry is unregulated, 9. 1 NEGATIVE EXTERNALITIES

9. 1 NEGATIVE EXTERNALITIES Figure 9. 2 shows inefficiency with an external cost. 1. 9. 1 NEGATIVE EXTERNALITIES Figure 9. 2 shows inefficiency with an external cost. 1. The market is in equilibrium at a price of $100 a ton and 4, 000 tons of chemical a month is inefficient. 2. Marginal social cost exceeds. . . 3. Marginal benefit.

9. 1 NEGATIVE EXTERNALITIES 4. The efficient quantity is 2, 000 tons of chemical, 9. 1 NEGATIVE EXTERNALITIES 4. The efficient quantity is 2, 000 tons of chemical, where marginal social cost equals marginal benefit. 5. The gray triangle shows the deadweight loss created by the pollution externality.

9. 1 NEGATIVE EXTERNALITIES <Property Rights Property rights Legally established titles to the ownership, 9. 1 NEGATIVE EXTERNALITIES

9. 1 NEGATIVE EXTERNALITIES Figure 9. 3 shows how property rights achieve an efficient 9. 1 NEGATIVE EXTERNALITIES Figure 9. 3 shows how property rights achieve an efficient outcome. 1. With property rights, the MC curve that excludes pollution costs shows only part of the producers’ marginal cost.

9. 1 NEGATIVE EXTERNALITIES 2. The marginal private cost curve includes the cost of 9. 1 NEGATIVE EXTERNALITIES 2. The marginal private cost curve includes the cost of pollution, and the supply curve is S = MC.

9. 1 NEGATIVE EXTERNALITIES 3. Market equilibrium is at a price of $150 a 9. 1 NEGATIVE EXTERNALITIES 3. Market equilibrium is at a price of $150 a ton and a quantity of 2, 000 tons of chemical a month and is efficient because… 4. Marginal social cost equals marginal benefit.

9. 1 NEGATIVE EXTERNALITIES <The Coase Theorem Coase theorem The proposition that if property 9. 1 NEGATIVE EXTERNALITIES

9. 1 NEGATIVE EXTERNALITIES Application of the Coase Theorem • If factories own homes 9. 1 NEGATIVE EXTERNALITIES Application of the Coase Theorem • If factories own homes and river, the rent people willingly pay decreases as the amount of pollution increases. • If homeowners own the river, factories must pay homeowners for any pollution, and the more they pollute, the more they pay. • Regardless of who owns the river, so long as someone owns it, the factories bear the cost of pollution, and the quantity of production and pollution are efficient.

9. 1 NEGATIVE EXTERNALITIES <Government Actions in the Face of External Costs The three 9. 1 NEGATIVE EXTERNALITIES

9. 1 NEGATIVE EXTERNALITIES Emission Charges Emission charges confront the producers with the external 9. 1 NEGATIVE EXTERNALITIES Emission Charges Emission charges confront the producers with the external cost of pollution and provide an incentive to seek technologies that are less polluting. To work out the emission charge that achieves efficiency, the regulator needs a lot of information about the industry, which is generally not available.

9. 1 NEGATIVE EXTERNALITIES Marketable Permits A marketable permit assigns to each producer in 9. 1 NEGATIVE EXTERNALITIES Marketable Permits A marketable permit assigns to each producer in an industry an emission limit. Producers can buy and sell permits in the market. Producers with a low marginal cost of reducing pollution will sell permits and producers with a high marginal cost of reducing pollution will buy. Producers will buy and sell permits until their marginal cost of pollution equals the market price of a permit.

9. 1 NEGATIVE EXTERNALITIES Taxes Figure 9. 4 shows the effects of a pollution 9. 1 NEGATIVE EXTERNALITIES Taxes Figure 9. 4 shows the effects of a pollution tax. 1. A pollution tax is imposed that is equal to the marginal external cost arising from pollution.

9. 1 NEGATIVE EXTERNALITIES The supply curve becomes the marginal private cost curve, MC, 9. 1 NEGATIVE EXTERNALITIES The supply curve becomes the marginal private cost curve, MC, plus the tax—the curve labeled S = MC + tax.

9. 1 NEGATIVE EXTERNALITIES 2. Market equilibrium is at a price of $150 a 9. 1 NEGATIVE EXTERNALITIES 2. Market equilibrium is at a price of $150 a ton and a quantity of 2, 000 tons of chemical a month and is efficient because… 3. Marginal social cost equals marginal benefit.

9. 1 NEGATIVE EXTERNALITIES 4. The government collects tax revenue shown by the purple 9. 1 NEGATIVE EXTERNALITIES 4. The government collects tax revenue shown by the purple rectangle.

9. 2 POSITIVE EXTERNALITIES <Private Benefits and Social Benefits Marginal private benefit The benefit 9. 2 POSITIVE EXTERNALITIES

9. 2 POSITIVE EXTERNALITIES Marginal social benefit The marginal benefit enjoyed by society—by the 9. 2 POSITIVE EXTERNALITIES Marginal social benefit The marginal benefit enjoyed by society—by the consumers of a good or service and by everyone else who benefits from it. Marginal social benefit (MSB) is the sum of marginal private benefit (MB) and marginal external benefit. MSB = MB + Marginal external benefit

9. 2 POSITIVE EXTERNALITIES Figure 9. 5 shows an external benefit. When 15 million 9. 2 POSITIVE EXTERNALITIES Figure 9. 5 shows an external benefit. When 15 million students attend college: 1. Marginal private benefit is $10, 000 per student. 2. Marginal external benefit is $15, 000 per student. 3. Marginal social benefit is $25, 000 per student.

9. 2 POSITIVE EXTERNALITIES Figure 9. 6 shows inefficiency with an external benefit. 1. 9. 2 POSITIVE EXTERNALITIES Figure 9. 6 shows inefficiency with an external benefit. 1. Market equilibrium is at a tuition of $15, 000 a year and 7. 5 million students and is inefficient because … 2. Marginal social benefit exceeds … 3. Marginal cost.

9. 2 POSITIVE EXTERNALITIES 4. The efficient number of students is 15 million. 5. 9. 2 POSITIVE EXTERNALITIES 4. The efficient number of students is 15 million. 5. The gray triangle shows the deadweight loss created because too few students enroll in college.

9. 2 POSITIVE EXTERNALITIES <Government Actions In the Face of External Benefits Four devices 9. 2 POSITIVE EXTERNALITIES

9. 2 POSITIVE EXTERNALITIES Public provision The production of a good or service by 9. 2 POSITIVE EXTERNALITIES Public provision The production of a good or service by a public authority that receives the bulk of its revenue from the government. Subsidy A payment that the government makes to private producers to cover part of the costs of production. Voucher A token that the government provides to households that can be used to buy specified goods or services.

9. 2 POSITIVE EXTERNALITIES Public provision Figure 9. 7(a) shows how public provision can 9. 2 POSITIVE EXTERNALITIES Public provision Figure 9. 7(a) shows how public provision can achieve an efficient outcome. 1. Marginal social benefit equals marginal cost with 15 million students enrolled in college. 2. The efficient quantity. 3. Tuition is $10, 000 per year. 4. The taxpayers cover the remaining $15, 000 of marginal cost per student.

9. 2 POSITIVE EXTERNALITIES Private Subsidies Figure 9. 7(b) shows how a subsidy achieves 9. 2 POSITIVE EXTERNALITIES Private Subsidies Figure 9. 7(b) shows how a subsidy achieves an efficient outcome. The efficient number of students is 15 million. 1. A $15, 000 subsidy per student shifts the supply curve to S = MC – subsidy. 2. The equilibrium price is $10, 000 a student.

9. 2 POSITIVE EXTERNALITIES 3. The market equilibrium is efficient with 15 million students 9. 2 POSITIVE EXTERNALITIES 3. The market equilibrium is efficient with 15 million students enrolled in college. 4. Marginal social benefit equals marginal cost.

9. 2 POSITIVE EXTERNALITIES Vouchers Figure 9. 8 shows how vouchers can achieve an 9. 2 POSITIVE EXTERNALITIES Vouchers Figure 9. 8 shows how vouchers can achieve an efficient outcome. The demand curve is D = MSB because… 1. With vouchers, buyers are willing to pay MB plus the value of the voucher.

9. 2 POSITIVE EXTERNALITIES 2. Market equilibrium is efficient with 15 million students enrolled 9. 2 POSITIVE EXTERNALITIES 2. Market equilibrium is efficient with 15 million students enrolled in college. 3. Price, marginal social benefit, and marginal cost are equal. 4. Tuition equals the dollar price of $10, 000 plus the value of the voucher.

9. 2 POSITIVE EXTERNALITIES Intellectual property rights The property rights of the creators of 9. 2 POSITIVE EXTERNALITIES Intellectual property rights The property rights of the creators of knowledge and other discoveries. Patent or copyright A government-sanctioned exclusive right granted to the inventor of a good, service, or productive process to produce, use, and sell the invention for a given number of years.

Externalities in YOUR Life Think about the negative and positive externalities that play a Externalities in YOUR Life Think about the negative and positive externalities that play a huge role in your life. And think about the sticks and carrots that attempt to align your self-interest with the social interest. You respond to the stick of a gasoline tax by buying less gas than you otherwise would. You respond to the huge carrot of subsidized tuition by being in school. Faced with full-cost tuition, many people would quit school. Think about your attitude as a citizen-voter to these two externalities. Have our politicians set the right incentives? Should the gas tax be higher? Should tuition be lower?