ECO101H1 Lecture Notes - Lecture 3: Retained Earnings, Indirect Tax, Pigovian Tax
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ECO101H1 Full Course Notes
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Social cost in consumption or production of a good. Allocatively efficient: marginal social cost = marginal social benefit. Government intervention: pigouvian taxes internalise the externality . Allocatively efficient to provide if marginal cost < or = to marginal benefit to society. Common resources non excludable but rival in consumption. Individuals have less incentive to take care of things that are commonly owned than things they own themselves. Therefore, inefficiently high levels of use (market failure) Use creates a negative externality (people overuse this product) Government regulation: limit the use of resources regulation or taxes. Correct for market failures by: pigouvian taxes, providing public goods, regulating common resources. Macroeconomics focus on the entire economy; the aggregate of the decision making process. Equilibrium price level and quantity of all goods. Aggregate output (gdp or national income: potential output (long-run equilibrium) Inflation and the price level: consumer price index (cpi) Interest rates and exchange rates: output in the world economy.