Econ 1101 1st Edition Lecture 15 Outline of Last Lecture II. Positive and Negative ExternalitiesIII. Graphically Depicting ExternalitiesOutline of Current Lecture IV. Pigouvian Taxa. AlternativesCurrent LectureWhen you tax/subsidize with an externality, you lower the externality cost/benefitIt improves the welfare of the economyA loss of a negative externality is a GAIN to the economy. Pigouvian TaxWith $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 costThe 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 TheoremALTERNATIVES:Command and controlquantity 53? Make people have 0.6 widget instead of 1 then 0.6x5 = 3Problem in EconlandNo efficient productionProblem with Fuel Efficiency StandardsThis does NOTHING for existing carsThese 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 carsNo incentive to switch truck to car or car to SUVTax 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
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