Externalities Graphs How i understand them

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That's how I understand externality graphs

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  • Why the green triangle is deadweight loss? I don’t know. I cannot find any explanation 
  • Deadweight loss caused by externalities (last slide) & deadweight loss caused by subsidy (this slide) are different 1) Why I shift MPC based on external benefit at Social Optimum Output, not external benefit at private quantity?Because what you want is quantity at Social Optimum Output. Subsidy you implement is also to achieve this quantity. Another word, your subsidy is to shift MPC to somewhere so that it cut MPB at quantity = Social Optimum Output.2) Is it realizable? Does textbook explain in the same way?Answer: My graph doesn’t contradict 6P, Parkin book and some websites so I think it’s fine  However, I haven’t found their explanation so I explain it in my way
  • Why the green triangle is deadweight loss? I don’t know. I cannot find any explanation How do they come up with that triangle? :-< …huhu… Yes I’m crying
  • Deadweight loss caused by externalities (last slide) & deadweight loss caused by tax (this slide) are different 1)Why I shift MPC based on external benefit at Social Optimum Output, not external benefit at private quantity?Answer: Because what you want is quantity at Social Optimum Output. Tax you implement is also to achieve this quantity. Another word, your tax is to shift MPC to somewhere so that it cut MPB at quantity = Social Optimum Output.2) Is it realizable? Does textbook explain in the same way?Answer: My graph doesn’t contradict 6P, Parkin book and some websites so I think it’s fine  However, I haven’t found their explanation so I explain it in my way
  • Why the green triangle is deadweight loss? I don’t know. I cannot find any explanation 
  • Why the green triangle is deadweight loss? I don’t know. I cannot find any explanation How do they come up with that triangle? :-< …huhu… Yes I’m crying
  • Externalities Graphs How i understand them

    1. 1. Externalities<br />This’s how I understand them…<br />
    2. 2. Positive Externalities<br />Example: Education <br />
    3. 3. Positive Externalities<br />Here is the graph present cost and benefit of education.<br />Without considering externality, quantity is at Qp. <br />Cost benefit<br />MPC<br />MPB<br />Output<br />Qp<br />
    4. 4. Positive Externalities<br />But education bring more benefit to society <br /> Beside private benefit, we have external benefit<br />Cost benefit<br />MPC<br />External Benefit<br />MSB<br />MPB<br />social optimum output <br />Output<br />Qp<br />Qs<br />
    5. 5. Positive Externalities<br />Because of the external benefit, marginal social benefit is over marginal private benefit<br />The social quantity demand Qs<br />Qp < Qs  Market Failure<br />Deadweight loss of externality / Welfare loss<br />Cost benefit<br />MPC<br />MSB<br />MPB<br />social optimum output <br />Output<br />Qp<br />Qs<br />
    6. 6. Positive Externalities<br />Government can implement subsidy to solve this situation, but how much subsidy? <br />Cost benefit<br />Deadweight loss of subsidy<br />MPC<br />Subsidy per unit<br />MSB<br />Subsidy paid<br />MPB<br />social optimum output <br />Output<br />Qp<br />Qs<br />
    7. 7. Negative Externalities<br />Example: Steel production causes pollution<br />
    8. 8. Negative Externalities<br />Here is the graph present cost and benefit of producing steel.<br />Without considering externality, quantity is at Qp. <br />Cost benefit<br />MPC<br />MPB<br />Output<br />Qp<br />
    9. 9. Negative Externalities<br />However, producing steel causes more cost to society <br /> Beside private cost, we have external cost<br />Cost benefit<br />MSC<br />MPC<br />External Cost<br />MPB<br />Output<br />Qp<br />
    10. 10. Negative Externalities<br />Because of the external cost, marginal social cost is over marginal private cost<br />The social quantity demand Qs<br />Qp > Qs  Market Failure<br />Cost benefit<br />MSC<br />Deadweight loss of externality / Welfare loss<br />MPC<br />MPB<br />social optimum output <br />Output<br />Qp<br />Qs<br />
    11. 11. Negative Externalities<br />Government can implement tax to solve this situation, but how much tax? <br />(Let’s say it’s fixed tax)<br />Cost benefit<br />MSC<br />MPC<br />Tax per unit<br />Tax Revenue<br />Deadweight loss of tax<br />MPB<br />social optimum output <br />Output<br />Qp<br />Qs<br />
    12. 12. That’s how I understand externalities graphs…<br />Please help me understand the problem better by answering my questions written in Notes, or send me feedback to my blog www. http://istudyecon.blogspot.com/<br />Thank you so much for your time<br />
    13. 13. Positive Externalities<br />Cost benefit<br />MPC<br />New point<br />External benefit<br />MSB<br />Old point<br />MPB<br />Output<br />Qp<br />Qs<br />
    14. 14. Negative Externalities<br />Cost benefit<br />MSC<br />MPC<br />External benefit<br />New point<br />Old point<br />MPB<br />Output<br />Qp<br />Qs<br />
    15. 15. Negative Externalities<br />Cost benefit<br />MSC<br />MPC<br />MPB<br />Output<br />Qp<br />Qs<br />

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