Principles of Macroeconomics :3

1. 4 THE ECONOMICS OF THE PUBLIC SECTOR

2. 10 Externalities

9. Figure 1 The Market for Aluminum Copyright © 2004 South-Western Quantity of Aluminum 0 Price of Aluminum Equilibrium Demand (private value) Supply (private cost) Q MARKET

13. Figure 2 Pollution and the Social Optimum Copyright © 2004 South-Western Quantity of Aluminum 0 Price of Aluminum Equilibrium Demand (private value) Supply (private cost) Social cost Q OPTIMUM Optimum Cost of pollution Q MARKET

19. Figure 3 Education and the Social Optimum Copyright © 2004 South-Western Quantity of Education 0 Price of Education Demand (private value) Social value Supply (private cost) Q MARKET Q OPTIMUM

31. Figure 4 The Equivalence of Pigovian Taxes and Pollution Permits Copyright © 2004 South-Western Quantity of Pollution 0 Price of Pollution (a) Pigovian Tax Demand for pollution rights P Pigovian tax 2. . . . which, together with the demand curve, determines the quantity of pollution. 1. A Pigovian tax sets the price of pollution . . . Q

32. Figure 4 The Equivalence of Pigovian Taxes and Pollution Permits Copyright © 2004 South-Western Quantity of Pollution 0 (b) Pollution Permits Price of Pollution Demand for pollution rights Q Supply of pollution permits 2. . . . which, together with the demand curve, determines the price of pollution. 1. Pollution permits set the quantity of pollution . . . P