Externalitas and Publics Goods/ Abshor Marantika/ Tirta Wisnuwardhana Sujasa
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This document provides definitions and concepts related to externalities, public goods, and environmental economics. It defines externalities as actions by producers or consumers that affect others but are not accounted for in market prices. It also defines negative and positive externalities, emissions standards, fees, and permits, stock externalities, the social discount rate, property rights, common property resources, and key aspects of public goods like their non-rival and non-exclusive nature which can lead to free riding.
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1
EXTERNALITIES
Externalities (spillovers): the impact on third parties of a transaction between others.
If fracking pollutes drinking water sources, it is an external cost (“negative externality”).
Back to Table of contents
2
Image credit: Associated Press, MCT via Getty Images
The extra safety your neighbor might have because everyone else in the area has purchased burglar alarms is a(n):
private cost.
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external benefit.
To Next
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Back to Table of contents
3
EXTERNALITIES
Examples of external costs:
air and water pollution
texting while driving
chemical runoff that affects fish stocks
Examples of external benefits:
education
beehives next to almond orchards
preserved farmland
Back to Table of contents
All image credits courtesy of Morgue File and/or FreeImages.com unless otherwise specified
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Image: Steve Debenport/Getty Images
5
IS THE MARKET ALWAYS EFFICIENT?
Market failure: free-market equilibrium not providing the socially optimal amount of a good.
Left to itself, a market economy will typically generate too much pollution because polluters have no incentive to take into account the costs they impose on others.
Back to Table of contents
All image credits courtesy of Morgue File and/or FreeImages.com unless otherwise specified
6
COSTS AND BENEFITS OF POLLUTION
The marginal social cost of pollution is the additional cost imposed on society as a whole by an additional unit of pollution.
Acid rain, smog, contaminated water, etc.
The marginal social benefit of pollution is the additional gain to society as a whole from an additional unit of pollution.
Goods and services, jobs, etc.
The socially optimal quantity of pollution is the quantity society would choose if all costs and benefits were fully accounted for.
Back to Table of contents
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SO HOW DO YOU MEASURE THE MARGINAL SOCIAL COST OF POLLUTION?
It’s the sum of the willingness to pay among all members of society to avoid that unit of pollution.
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Question 1
A factor of production whose quantity can be changed during a particular period is a:
marginal factor of production.
fixed factor of production.
incremental factor of production.
variable factor of production.
Question 2
Assuming that all other factors of production are held constant, marginal product is the change in ________ output resulting from a 1-unit change in _______ .
total; a variable input
total; a fixed input
total; average product
per unit; a fixed input
Question 3
Average variable cost is the ratio of:
total cost to the marginal cost.
total cost to the amount of variable input.
variable cost to the quantity of output.
marginal cost to the quantity of output.
Question 4
The curve labeled V represents the firm's _______ curve.
total cost
average total cost
marginal cost
average variable cost
Question 5
When an increase in the firm's output reduces its long-run average cost, it experiences:
economies of scale.
diseconomies of scale.
constant returns to scale.
variable returns to scale.
Question 6
A firm that is able to more efficiently utilize by-products as it increases production in the long run is an example of:
economies of scale.
diseconomies of scale.
labor-intensive production.
capital-intensive production.
Question 7
If your plant is operating in the positively-sloped portion of a long-run average cost curve, this could be the result of:
decreased input prices.
improved utilization of by-products.
specialization of resources.
limited decision-making capacity.
Question 8
Perfect competition is a model of the market that assumes all of the following EXCEPT:
a large number of firms.
firms face downward-sloping demand curves.
firms produce identical goods.
many buyers.
Question 9
The Case in Point on the Burkha Industry suggested that this industry:
might be an example of perfect competition although it did not feature easy entry and exit.
might be an example of perfect competition because it did feature easy entry and exit.
might not be an example of perfect competition although it did feature easy entry and exit.
might not be an example of perfect competition because it did not feature easy entry and exit.
Question 10
If a perfectly competitive firm sells 30 units of output at a price of $10 per unit, its marginal revenue is:
$10.
more than $10.
less than $10.
$300.
Question 11
The difference between total revenue and total cost is:
economic profit.
nominal revenue.
average revenue.
marginal revenue.
Question 12
If a perfectly competitive firm is producing a quantity that generates MC < MR, then profit:
is maximized.
can be increased by increasing production.
can be increased by decreasing production.
can be increased by increasing the price.
Question 13
In the short run, a perfectly competitive firm does not produce output and earns a negative economic profit if:
P = ATC.
P < AVC.
AVC > P > ATC.
AVC < P < ATC.
Question 14
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1. Firms combine inputs to produce outputs in order to make a profit. They face production decisions like how much to produce and which production methods to use.
2. In perfect competition, firms are price takers and face homogeneous goods and many competitors. They produce at the minimum of average total cost to maximize profits.
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- An externality is the impact of an economic activity on a third party not involved in the activity. Externalities can be either negative or positive.
- Private costs consider only the costs to the producer/consumer, while social costs consider costs to society overall, including external costs imposed on third parties.
- When external costs are present but not accounted for, markets will be inefficient as the private equilibrium will not maximize total social welfare. This can lead to overproduction or underproduction depending on if externalities are negative or positive.
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Market failures such as externalities can cause markets to be inefficient and produce either too much or too little of a good relative to the social optimum. Negative externalities like pollution lead to an overallocation of resources, while positive externalities like education lead to underallocation. Government intervention through command-and-control policies or market-based policies like Pigouvian taxes or tradable permits can help internalize these externalities and achieve efficiency. However, collective action problems mean global issues like climate change require international agreements, though these remain non-binding with issues around equity and enforcement.
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What externalities are and why they can lead to inefficiency and government intervention in the market
The difference among negative, positive, and network externalities
The importance of the Coase theorem, which explains how private individuals can sometimes remedy externalities
Why some government policies to deal with externalities, like emissions taxes, tradable emissionspermits, or Pigouviansubsidies, are efficient, and others, like environmental standards, are not
What makes network externalities an important feature of high–tech industries
To Video
To First
Active Learning
What you will learn in this chapter
1
EXTERNALITIES
Externalities (spillovers): the impact on third parties of a transaction between others.
If fracking pollutes drinking water sources, it is an external cost (“negative externality”).
Back to Table of contents
2
Image credit: Associated Press, MCT via Getty Images
The extra safety your neighbor might have because everyone else in the area has purchased burglar alarms is a(n):
private cost.
external cost.
private benefit.
external benefit.
To Next
Active Learning
LEARN BY DOING: PRACTICE QUESTION
Back to Table of contents
3
EXTERNALITIES
Examples of external costs:
air and water pollution
texting while driving
chemical runoff that affects fish stocks
Examples of external benefits:
education
beehives next to almond orchards
preserved farmland
Back to Table of contents
All image credits courtesy of Morgue File and/or FreeImages.com unless otherwise specified
4
FOR INQUIRING MINDS: TEXTING
1 in 4 accidents (250,000 per year) are caused by cell phone use (National Safety Council, 2012)
43 states have banned it… because of the negative (fatal) externalities.
Back to Table of contents
Image: Steve Debenport/Getty Images
5
IS THE MARKET ALWAYS EFFICIENT?
Market failure: free-market equilibrium not providing the socially optimal amount of a good.
Left to itself, a market economy will typically generate too much pollution because polluters have no incentive to take into account the costs they impose on others.
Back to Table of contents
All image credits courtesy of Morgue File and/or FreeImages.com unless otherwise specified
6
COSTS AND BENEFITS OF POLLUTION
The marginal social cost of pollution is the additional cost imposed on society as a whole by an additional unit of pollution.
Acid rain, smog, contaminated water, etc.
The marginal social benefit of pollution is the additional gain to society as a whole from an additional unit of pollution.
Goods and services, jobs, etc.
The socially optimal quantity of pollution is the quantity society would choose if all costs and benefits were fully accounted for.
Back to Table of contents
7
SO HOW DO YOU MEASURE THE MARGINAL SOCIAL COST OF POLLUTION?
It’s the sum of the willingness to pay among all members of society to avoid that unit of pollution.
It may be hard to estimate, so society often underestimates it.
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1102 exclusionary anticompetitive_practices
This document summarizes a report on exclusionary anti-competitive practices and their effects on trade and competition. It finds that existing trade agreements do not adequately address problems caused by exclusionary practices like exclusive dealing and abuse of dominance. While proposed bans on hard-core cartels and discriminatory laws would help, they would not address many exclusionary practices raising trade issues. There are divergences between trade and competition perspectives on these practices' effects. Positive comity cooperation has limits, and prohibitions could be harmful if not based on proven net anti-competitive harm. Overall, more work is needed to develop a common understanding and balanced multilateral approach to exclusionary practices.
1102 exclusionary anticompetitive_practices
This document examines exclusionary anti-competitive practices, their effects on competition and development, and mechanisms to address them. It finds that while hard core cartels are now banned in many countries, exclusionary practices remain a major international trade problem and are not fully addressed by existing trade and competition agreements. The document reviews case studies of exclusionary practices like import cartels and abuse of dominance. It also analyzes the limitations of unilateral, bilateral and regional approaches. The document proposes strengthening mechanisms for international cooperation, such as positive comity, and advancing discussions on multilateralizing positive comity to help address remaining challenges from exclusionary anti-competitive practices.
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Unit 3 Business Economics Glossary
The document provides definitions for various business economics concepts in a glossary format. It defines key terms related to market structures, costs, pricing strategies, mergers and acquisitions, competition, and other foundational concepts in business economics. Some key terms defined include monopoly, oligopoly, economies of scale, marginal cost, price discrimination, and mergers and acquisitions.
Question 1A factor of production whose quantity can be changed d.docx
Question 1
A factor of production whose quantity can be changed during a particular period is a:
marginal factor of production.
fixed factor of production.
incremental factor of production.
variable factor of production.
Question 2
Assuming that all other factors of production are held constant, marginal product is the change in ________ output resulting from a 1-unit change in _______ .
total; a variable input
total; a fixed input
total; average product
per unit; a fixed input
Question 3
Average variable cost is the ratio of:
total cost to the marginal cost.
total cost to the amount of variable input.
variable cost to the quantity of output.
marginal cost to the quantity of output.
Question 4
The curve labeled V represents the firm's _______ curve.
total cost
average total cost
marginal cost
average variable cost
Question 5
When an increase in the firm's output reduces its long-run average cost, it experiences:
economies of scale.
diseconomies of scale.
constant returns to scale.
variable returns to scale.
Question 6
A firm that is able to more efficiently utilize by-products as it increases production in the long run is an example of:
economies of scale.
diseconomies of scale.
labor-intensive production.
capital-intensive production.
Question 7
If your plant is operating in the positively-sloped portion of a long-run average cost curve, this could be the result of:
decreased input prices.
improved utilization of by-products.
specialization of resources.
limited decision-making capacity.
Question 8
Perfect competition is a model of the market that assumes all of the following EXCEPT:
a large number of firms.
firms face downward-sloping demand curves.
firms produce identical goods.
many buyers.
Question 9
The Case in Point on the Burkha Industry suggested that this industry:
might be an example of perfect competition although it did not feature easy entry and exit.
might be an example of perfect competition because it did feature easy entry and exit.
might not be an example of perfect competition although it did feature easy entry and exit.
might not be an example of perfect competition because it did not feature easy entry and exit.
Question 10
If a perfectly competitive firm sells 30 units of output at a price of $10 per unit, its marginal revenue is:
$10.
more than $10.
less than $10.
$300.
Question 11
The difference between total revenue and total cost is:
economic profit.
nominal revenue.
average revenue.
marginal revenue.
Question 12
If a perfectly competitive firm is producing a quantity that generates MC < MR, then profit:
is maximized.
can be increased by increasing production.
can be increased by decreasing production.
can be increased by increasing the price.
Question 13
In the short run, a perfectly competitive firm does not produce output and earns a negative economic profit if:
P = ATC.
P < AVC.
AVC > P > ATC.
AVC < P < ATC.
Question 14
If all fir ...
Market Failure
This document discusses market failures and reasons for government intervention in markets. It provides examples of two common types of market failures: public goods and external costs. Public goods are nonrival and nonexcludable, so private markets underproduce them. Examples given include national defense and flood control. External costs occur when a third party bears costs from a market activity, such as pollution from factories. This leads markets to overproduce goods with negative externalities. The document argues government can intervene to correct for market failures through policies like taxes, subsidies, and cap-and-trade systems.
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