Questions tagged [externalities]
The externalities tag has no usage guidance.
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Question on Finding the Correct Emission Tax $t$
Let there be two companies $U_{1}$ and $U_{2}$ where, initially $U_{1}$ produces and sells $x$ units at $p=18$. Production costs are $C_{U_{1}}(x)=\frac{1}{6}x^3$ and in the process $a$ units of ...
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1answer
21 views
How does social cost and social benefit work?
I am really lost right now. I have a test tomorrow and I am stressing out.
Whatever I look at for externalities, which could be my textbook, a website, notes from class, they all contradict each other....
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1answer
57 views
Is it right to derive social marginal benefit by adding individual prices instead of quantities?
I come across a lecture material on market functions and externalities that makes me quite confused. Here's the setup: Two stores are located next to each other. If one installs a camera system in ...
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2answers
83 views
Welfare status when a positive externality is subsidised
I was wondering if there is still welfare loss for example there is a positive externality in production of a good and the government decides to subsidise the good?
I think it does still have ...
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1answer
189 views
Who pays externalities?
Suppose the state raises taxes in order to internalise externalities. Doesn't the consumer have to pay the additional external costs then, because the prices are raised due to the taxes?
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0answers
299 views
Private and Social Optimum with externality in this example
Firstly, I wanted to know if we may be consider as an externality, a situation such that a customer A bought a bike to a seller B, not properly checked - and which may provoke some accidents.
...
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1answer
35 views
Optimal taxing in case of negative externalities
Suppose an individual $i$ has the utility function
$U= f(x(i)) - k$(sum of all $x$ with index not equal to $i$)
Where $x(i)$ denotes the miles driven by $i$, and $k$ is a positive constant.
The ...
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2answers
128 views
Are risk-costs a form of external costs?
An example to make to question more clear: With the use of nuclear power plants come several risk-costs (the risk of a nuclear disaster). These costs aren't included in the energy price and there is ...
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0answers
178 views
Pigouvian subsidies for non-linear marginal external benefits
Suppose an agent is choosing how much $x$ to consume and $p_x=200$. If the agent's marginal private benefit is $MPB(x)=300/x$ and $x$ takes only integer values, then he will choose to purchase just ...
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1answer
194 views
What would a negative externality diagram look like if the initial price is equal to 0 and then increased with tax?
The price of plastic bags in Scotland has been increased from free to 0.05 pounds sterling. How would I represent the negative externality decrease using a diagram in such a situation?
This is what I ...
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0answers
138 views
Competitive prices, tax and lump sum cash transfer in case of externalities
An economy is made up of two people. The utility functions are
$$u_1(x_{11},x_{12}) = x_{11}x_{12}$$
$$u_2(x_{21},x_{22}) = 2x_{21} + 2x_{22} −x_{11}$$
The initial endowments are $ω_1 = (1,0)$ and $...
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2answers
101 views
How can a free market be operated in a way that significant social and environmental costs are intrinsically covered?
More precisely, is there any practical way to operate a free market so that external costs, namely negative social and environmental impacts, become naturally (intrinsically) covered (paid for or ...
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2answers
154 views
Why does the European Union give subsidies to farmers?
According to neoclassical economics, subsidies are a solution to correct for the existence of externalities in consumption or production.
What is the economic rationale/justification for such ...
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2answers
2k views
Pareto optimality with externalities
I'm reading the book "Economics of natural ressources and the environment" written by D. Pearce and R. Turner. They explain that the competitive equilibrium is not a Pareto optimum in case of (...
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1answer
276 views
Externalities - First order conditions
I am currently reading the book "Microeconomics: Principles and Analysis" by Cowell on my own. I'm reading the externalities chapter, and i found an interesting example:
There are just two firms: ...
6
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1answer
242 views
Understanding at a quote about externalities in law and economics
that something is an externality is partly a statement about physical reality and partly a statement about the legal system.
What does this mean? I assume the aspect of externality being a physical ...
3
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1answer
297 views
Negative consumer externality vs demerit good - what's the difference?
The example I was given for each was cigarettes.
What market may have negative consumer externalities but is not a market for a demerit good?
What is a type of demerit good that may not have a ...
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1answer
288 views
Confusion regarding remedying negative externalities of consumption through taxation
This diagram in my textbook illustrates two solutions to a negative externality of consumption - here, the consumption of cigarettes. It states that MSC is shifted upwards by the specific tax. Since ...
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1answer
220 views
What are the current economic theories of product advertising?
Are there any well known economic theory references about advertising? It seems you could think of advertising as imposing a negative externality on other producers or on consumers in that it takes up ...
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2answers
130 views
Are obstructed views a negative externality?
I recently read an excellent paper on the causes of high urban real estate prices in the United States, Why is Manhattan so expensive? Regulation and the rise in house prices (GLAESER, GYOURKO, and ...
3
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1answer
424 views
Has the “dismal theorem” practical implications?
The so-called "dismal theorem" asserts that we do not appropriately account for catastrophic scenarios which have very small probability of occurrence. It has been studied in details by Martin's ...
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4answers
2k views
Is market failure constant? What properly defines it?
My textbook defines market failure as when "the production or consumption of a good or service causes additional positive or negative externalities on a third party not involved in the economic ...
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185 views
Finding Pareto efficiency from competitive equilibrium
So to my knowledge, the competitve equilibrium would be Marginal cost= Marginal private benefit. My question is, how would you determine what the pareto efficiency is from the Marginal social benefit ...
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1answer
275 views
Music Streaming Impact on Producers
I am currently writing a news commentary on music streaming services. My commentary is focused on demand and supply, consumer and producer surplus, externalities, and public goods. And there are a few ...
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1answer
250 views
Network goods in competitive markets vs. socially optimal network size
In networks economics, the socially optimum equilibrium is bigger than the one in perfect competition (see for instance, Easley and Kleinberg 2010, Ch. 17).
Why is that so? Could you provide me with ...
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1answer
206 views
Equilibrium with Externalities: Solving without FOC
I have a general equilibrium problem, where households given objective function $U(c,n)$ solve for working hours and consumption $n, c$, and firms use labor to produce a consumption good - their ...
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4answers
1k views
Are billboards beneficial for the economy? Why?
Billboards cost money to make and don't really seem to significantly benefit anyone other than billboard-makers. A company c putting up billboards presumably increases profits from the resulting ...
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1answer
539 views
What's the difference between a “consequential” and a “direct” externality?
I'm reading Png & Hui on the economics of privacy. (http://128.118.178.162/eps/io/papers/0505/0505007.pdf great review article). Can someone explain the difference between direct and consequential ...
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0answers
51 views
Empirical evidence on what makes a border adjustment successful at correcting a distortion without exporting externalities?
One of the challenges of constructing a national or regional market-correction scheme to remove the distortions from negative externalities, is that such a scheme is liable to create leakage: for ...
6
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1answer
80 views
Pricing a negative externality under high uncertainty and severe non-linearity
Take a negative externality such as excess greenhouse gas emissions.
We know some awkward things about the economic cost of this externality:
There is fairly large uncertainty about the timing of ...
7
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1answer
253 views
A market correction for an industry which has had long-run negative externalities
Take a market where there have been long-run negative externalities. That is to say, the negative externalities have been in place long enough to have played a part in the investment decisions for all ...
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2answers
883 views
Differentiate a positive externality and the absence of a negative externality. Tax or subsidize?
I hope this isn't overly semantic, but I'd like to gain some clarification on the use positive (or negative) externality.
I usually shoot down suggestions for examples of positive externalities like ...
