ECON 1051 1nd Edition Lecture 19 Outline of Last Lecture I. Externalities II. Effect of Externalities III. Negative Externalities IV. Positive Externalities Outline of Current Lecture I. Government Policies to Deal With Positive Externalities II. Government Policies to Deal With Negative Externalities III. Pigourian Taxes Current LectureI. Government Policies to Deal With Positive Externalities a. Command-and-Control Approach i. Government mandates you to do somethingii. Example:1. Mandating college degreesiii. Effects: 1. Not very democratic or economical b. Market-Based Approach - Subsidies i. The government can offer subsidies so that consumers can internalize positive externalities ii. Used as a market incentive to encourage activity or a good that has positive externalities These notes represent a detailed interpretation of the professor’s lecture. GradeBuddy is best used as a supplement to your own notes, not as a substitute.II. Government Policies to Deal With Negative Externalities a. Command-and-Control Approach i. The government can set a quota for production to prevent overproductionii. Example: 1. Making tire companies clean up their by-products at their own expense b. Market-Based Approach – Taxing i. Every time a good is produced, a tax is paid on the product this increases the cost of the production 1. Causes supply to go down 2. Impose a tax large enough so that it brings private cost curve closer to the social curve ii. Example: 1. Taxes on cigarettes, alcohol, gas because they all produce negativeexternalities III. Pigourian Taxes a. When taxes or subsidies are used to discourage or encourage production or consumption of some
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