Econ 1101 1st Edition Lecture 15 Outline of Last Lecture II Positive and Negative Externalities III Graphically Depicting Externalities Outline of Current Lecture IV Pigouvian Tax a Alternatives Current Lecture When you tax subsidize with an externality you lower the externality cost benefit It improves the welfare of the economy A loss of a negative externality is a GAIN to the economy Pigouvian Tax With 4 tax the consumer is paying true social cost of another widget Internalize the Externality The cost is no longer JUST private cost its private cost AND social cost The new efficient outcome is to have government tax when there is a negative externality it increases the total surplus This completely breaks down the First Welfare Theorem ALTERNATIVES Command and control quantity 5 3 Make people have 0 6 widget instead of 1 then 0 6x5 3 Problem in Econland No efficient production Problem with Fuel Efficiency Standards This does NOTHING for existing cars 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 Different standards for different types of cars No incentive to switch truck to car or car to SUV Tax is more efficient but politically it is not popular so you can t get by with it so much Instead the government issues a cap and trade and places a quota on the good There is not tax but they are still controlling it Graphically it is the same as a tax but not politically unpopular
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