Economics 1021A/B Chapter Notes - Chapter 16: Coase Theorem, Ecotax, Marginal Cost

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In the figure, the demand curve d also measures the marginal social benefit, The supply curve s also measures the marginal private cost, mc, of the producers. (cid:120) market equilibrium at a price of a tonne and 4,000 tonnes a month is inefficient because marginal social cost exceeds marginal benefit. Property rights are legally established titles to the ownership, use, and disposal of factors of production and goods and services that are enforceable in the courts. The bottom figure shows that with property rights, the marginal cost curve that excludes pollution cost shows only part of the producers" marginal cost. The coase theorem is the proposition that if property rights exist, if only a small number of parties is involved, and if transactions costs are low, then private transactions are efficient. 378-379 for a description of emission charges and cap-and-trade. (cid:120)

Related Questions

2. An externality can be a cost or benefit arising from the production of a good that falls upon

a. consumers but not producers.

b. producers but not consumers.

c. the consumer and the producer both.

d. someone other than the consumer or producer.

Environmental policy and public goods focus on externalities in the context of producing goods and services, but like many concepts in our course, these ideas are very applicable to our daily lives.

1) Identify and describe a situation where you have experienced either a positive or negative externality.

2) State clearly what the external cost or benefit is.

3) Estimate the dollar value of the externality. You may not be sure how to do this, so consider asking yourself the following: If it's a positive externality, what is the highest price you would be willing to pay for the external benefit you received? If it's a negative externality, what is the lowest price you would be willing to accept as compensation for the external cost you are bearing?

4) Recommend either a tax or subsidy amount that the externality creator should pay or receive (to internalize the externality) based on the number of people affected. You may assume that everyone affected has the same valuation for the externality as you do.

beigemacaw847

Suppose that the Private Cost of producing a good is given by the equation Q = 3.1P - 14.6, but the Social Cost of producing the good is given by Q = 3.1P - 29.5. The government would like to correct this externality by imposing either a tax or subsidy for each unit produced.

How much should the government tax/subsidize the production of this good to correct the externality?

Important Note: If you find that a subsidy would correct the externality, then you should enter in a positive answer. If you find that a tax would correct the externality, then you should enter in a negative answer. As always, round your answer to two decimal places.

raspberrygerbil89

Economics 1021A/B Chapter Notes - Chapter 16: Coase Theorem, Ecotax, Marginal Cost

ECON 1021A/B Full Course Notes

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