Questions tagged [externalities]

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1answer
149 views

Pigouvian tax equivalent to Coasian payments

Consider an economy with two goods, $x$ and $y$. Suppose person a's consumption of good $y$ imposes a negative externality on person b. Person a's utility maximisation problem is $$\max_{x_a,y_a} \ ...
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1answer
68 views

Pigouvian tax with general utility function

Suppose person a's consumption of good $y$ imposes a negative externality on person b. Person a's utility maximisation problem is $$\max_{x_a,y_a} \ u_a(x_a,y_a),$$ subject to $$p_x x_a+p_y y_a=e_a.$$ ...
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45 views

Question about externalities

I have the following question about externalities. Suppose that a company is planning to construct a building next to your house which will limit your access to the street. This will force you to ...
4
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1answer
71 views

Understanding an article in the BMJ about the sugar tax

The research paper Changes in soft drinks purchased by British households associated with the UK soft drinks industry levy: controlled interrupted time series analysis was examining the impact of the ...
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2answers
44 views

external benefit confusion

I'm a little confused by the following question and answer provided by MRU: Fruit farmers pay beekeepers for their honeybees’ pollination services. Honeybees provide an external benefit to fruit ...
2
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2answers
73 views

Optimal Price and Quantity of Externality

I am trying to solve the following question: Let $h \geq 0$ represent a negative externality of a firm's production on one (representative) consumer. The consumer has a quasi-linear utility function ...
1
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1answer
49 views

Calculating optimal level of negative externality

I am trying to solve the following question(s): Let $h \geq 0$ represent a negative externality of a firm's production on one (representative) consumer. The consumer has a quasi-linear utility ...
2
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2answers
104 views

Internalising an externality for a free merit good

I am researching vaccinations as a merit good and I am focusing on an article which discusses how some people are rejecting one of the COVID vaccines because of misinformation about how it may be less ...
1
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1answer
72 views

I don't understand how a graph would look like for this situation

If there is a negative production externality of agriculture which is water wastage, and the government provides a 100% subsidy to the farmers so they can buy irrigation gadgets to reduce water ...
3
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1answer
38 views

Consumption Externalities in partial equilibrium analysis

I've been working on a standard partial equilibrium with externalities problem and have been having some difficulty with these (relatively) basic concepts. My issue is primarly with solving for Pareto ...
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0answers
39 views

Question about deadweight social burden triangle. Error in the test?

I have been trying to answer the following question for the past two hours. I've looked at textbook examples, online resources and lecture notes. There seem to be two correct answers but I may be ...
4
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2answers
107 views

Externality and Output

In a positive externality, can government just set the price to the socially efficient price instead of a subsidy to correct an externality?
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1answer
30 views

Economic impact of employer ignorance to cliff effects?

Let's say an employee, Mike in Indiana, earns \$10.50 an hour. He gets a raise to \$13, but because he is no longer eligible for SNAP (food stamps), his net earnings actually go down. His wage has ...
4
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1answer
127 views

In the case of externalities, does the initial allocation of rights affect the final outcome from the perspective of each party?

I think I understand the main implication of the Coase Theorem—that the outcome will be Pareto efficient regardless of the initial allocation of property rights, provided transaction costs are zero, ...
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25 views

Resources on effects of transactions building in externalities

In theory, a nation could build the full economic cost of externalities, be they positive or negative, into a wide range of transactions. Are there any comprehensive resources on the effects this ...
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1answer
32 views

Why is the equilibrium network size can be less than the socially optimal size in networks w/ positive externalities for single system?

For Context, I am reading http://web.mit.edu/rpindyck/www/Courses/NetEx19.pdf. The chapter talks about network externalities in single system like fax machine, email, vaccinations for measles. ...
3
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1answer
75 views

Is there any academic source that uses the following 'standard broad' definitions of externality?

According to answer to this question by KennyLJ., there exists the following definition of externality: The simple, standard, and broad definition I favor is this: A decision's effects are called ...
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2answers
117 views

Is the use/consumption of natural resources considered an externality per se?

On a finite planet natural resources are rival goods by definition, i.e. if one agent uses/consumes a natural resource it becomes unavailable for other agents. Mankiw defines an externality as "the ...
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1answer
45 views

Externalities, Pigouvian Taxes and Wikipedia

It states on Wikipedia: A Pigovian tax (also called Pigouvian tax, after economist Arthur C. Pigou) is a tax imposed that is equal in value to the negative externality. The result is that the ...
3
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1answer
94 views

How much should it cost to close the beach?

For most of the past week a private surfing contest has closed off Steamer Lane - one of California's most popular waves - while paying only a few hundred dollars in permit fees. I think this is far ...
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1answer
32 views

Optimizing Lagrangian Function Subject to 4 Input/Output Constraints:

The objective function: $$\text{utility}=U\left(x_{c}, y_{c}\right)$$ subject to, $x_{o}=f\left(y_{i}\right)$ $y_{o}=g\left(x_{i}, x_{o}\right)$ $x_{c}+x_{i}=x_{o}+x^{*}$ $y_{c}+y_{i}=y_{o}+y^{*}$ ...
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1answer
177 views

Relationship between the Tragedy of the Commons and negative externalities?

I've read that the tragedy of the commons can be seen as a negative externality. That is, $MSC > MPC$. However, I'm having trouble understanding why the supply curve actually shifts downwards due ...
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53 views

Estimates of magnitude of externalities generated by education?

It is standard to claim that education generates positive externalities. For example, Mankiw (2017, Principles of Economics, p. 193): education also yields positive externalities. One externality ...
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1answer
23 views

Externalities from motor vehicles - more recent estimates?

I am looking for estimates for the externalities from motor vehicles. There's an excellent paper "Automobile Externalities and Policies" (2007) on this exact issue, but it's a bit old now. I was ...
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2answers
36 views

Is there an externality if someone buys all stock of some merchandise?

Is there an externality if someone buys all stock of some merchandise? On one hand, if they buy all of everything and there's still demand then they've taken it away from other people. On the other ...
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2answers
87 views

Is loss in tax revenue a negative externality?

I was thinking about how online gambling could cause numerous governments to face a reduction in tax revenue from conventional gambling, upon which taxes do apply in most countries. If governments ...
0
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1answer
84 views

(Microeconomics) How to classify Public Goods and Common Resources in Externalities?

In Microeconomics there are 4 types of externalities - Positive Consumption Externality, Positive Production Externality, Negative Consumption Externality, and Negative Production Externality. And ...
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1answer
59 views

Question regarding social welfare in the presence of externalities

I am currently learning high school level economics and I do not understand how indirect taxation may increase net social welfare in the presence of negative production externality. This is because, ...
2
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2answers
514 views

Providing subsidies affects Marginal Private cost but not Marginal Social Cost?

According to the theory that I'm seeing on the internet and in textbooks, when a government wants to correct underproduction due to a positive externality of production, they can decide to subsidize ...
3
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3answers
344 views

Is there really an "efficient equilibrium *price*" with externalities?

In the "Intro to Micro" approach to externalities, I've always felt uneasy as a teacher with the idea that there is something like an "efficient equilibrium" with a single "efficient price". To keep ...
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2answers
97 views

Does the Efficient Market Hypothesis Solve the Tragedy of the Commons?

My layman understanding of the Efficient Market Hypothesis is that there is so much brain power focused on the maximization of profit in the marketplace, that the market will find the best solution ...
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28 views

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
69 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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2answers
278 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
145 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
647 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
503 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
40 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
268 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
235 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 ...
0
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1answer
378 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
183 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
156 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
196 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
4k 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 (...
3
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1answer
702 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: ...
5
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1answer
380 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 ...
4
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1answer
799 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
334 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
335 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 ...