ECON 160 Lecture Notes - Lecture 20: Coase Theorem, Carbon Tax, Social Cost
Document Summary
Midterm: oct 31st , chapters 6, 8, 10, 11. Pollution permits (cap and trade) vs command and control. The market doesn"t take externalities into account, because it affects everyone equally, regardless of if they are in the market or not. Costs such as wages and equipment are factored into the private cost, but pollution caused by the product is not. The government acts for the good of all, so the government can improve the market in the face of externalities in theory. However, some economists believe that the government is so corrupt that they will not improve it. Pollution permits: the government gives firms the right to pollute certain amounts per year. This is positive for the economy when companies are allowed to trade permits, because some companies buy the permits, while other companies become greener, and it doesn"t change the overall amount of pollution.