Econ 201 1st Edition Lecture 26Outline of Last Lecture 1. Beer Taxation ExamplesOutline of Current Lecture 1. ExternalitiesCurrent LectureThe Economic Problem of Externalities• An unintended and uncompensated impact of one agent’s actions on another agent.• The efficiency problem: Market equilibrium is not efficient.– Illustration with electricity from coal– Fixing with a Pigovian tax• Taxonomy for externalities ~ 2 x 2 matrix: – Positive and Negative– Due to Production or Consumption• Solutions without government intervention ~ Coase Theorem• When private solutions do not emerge – regulatory options– Direct regulation ~ Command-and-Control– Economic Instruments approach to regulation• Emissions Fee and Tradable Permits – i.e. Cap & TradeExamples of Severe Air Pollution EventsThese 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.• The 1930 Meuse Valley Smog (Belgium)– Due to industrial air pollution and climatic conditions– 60 deaths• The 1948 Donora Smog (Donora, Pennsylvania)– Due to industrial air pollution and climatic conditions– 20 deaths; 7,000 people sickened• Great Smog of London ~ 1952– Due to extensive burning of coal and climatic conditions– 4,000 to 12,000 deaths; 100,000 people sickened• Economic activity generates air pollution– Are the market equilibria efficient from a social perspective?– Are associated morbidity and mortality reasonable tradeoffs for the income
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