ECON 1 Lecture Notes - Lecture 17: Externality, Excise, Carbon Tax
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ECON 1 Full Course Notes
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Hw: quiz 1, everything since quiz 1, (cid:389)indifference principle,(cid:390) opportunity cost and supply/cost curves. Total wages = w*l (wage rate, labor hours) Proposed solutions involve government intervention in market. If trade produces pollution, trade between two parties imposes damages on other parties. Global warming: co2 emissions occur from such trades. If externality, market may not maximize total profits. Dark side: each ornament manufactured imposes sh. 40 of air pollution damage on. The isle of effluvia example each of the 50 effluvians. Equilibrium: p = , q = 20 ornaments. Social cost = + = . Cost curve is higher than supply function. But prohibits some trades that would increase profit. A buyer willing to pay and a seller willing to accept . Excise tax of per unit on suppliers (the pollution/social cost) Pigouvian tax tax something there should be less of, reduce something taxing with equivalent amount (shift taxes) Now trade only if joint profit > .
