EC120 Lecture 20: CHAPTER 10 NOTES
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EC120 Full Course Notes
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Document Summary
Externalities is when production or consumption affects others in society: uncompensated impact of one person"s actions on the well being of a bystander, analyzing externalities are consumers and producer"s surplus, government policy are subsidies and taxes. Examples of externalities: exhaust from automobiles: Negative externality due to smog and air pollution. Emission standards and gasoline taxes: restoration of historic buildings and spending on gardens: Tax breaks for building restoration: barking dogs and other forms of noise. Local noise bylaws with fines for excessive noise: research into new technologies. Positive externality if resulting knowledge can be used. Patent systems and public investment in basic research. Gasoline taxes: many countries have significant gasoline taxes, many externalities associated with driving: Traffic slows everyone down as more people drive. Gas taxes reduce the use of gasoline reducing emissions: optimal gas taxes vary across countries. Technology spillovers and industrial policy: new technology means positive externality: Training of workers on new technology: subsidizing development of technology:
