ECON101 Study Guide - Final Guide: Pigovian Tax, Marginal Revenue, Deadweight Loss

• School: University of Alberta
• Department: Economics
• Course: ECON101
• Professor: Alexander Gainer

Document Summary

Internalizing the externality: alter incentives so that people take account of the external effects of their action. Industrial policy: government intervention in the economy that aims to promote technology enhancing industry. Govt can respond to extranaitites in two ways: command and control policies: regulate behavior directly, market based policies: provide incentives so that private decision makers will choose to solve the problem on their own. A deadweight loss, also known as excess burden or allocative inefficiency, is a loss of economic efficiency that can occur when equilibrium for a good or a service is not achieved. That can be caused by monopoly pricing in the case of artificial scarcity, an externality, a tax or subsidy, or a binding price ceiling or price floor such as a minimum wage. A pigovian tax (also spelled pigouvian tax) is a tax levied on any market activity that generates negative externalities(costs not internalized in the market price).