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Externalities Graphs How i understand them

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That's how I understand externality graphs

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

Transcript

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