Questions tagged [externalities]
The externalities tag has no usage guidance.
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1answer
33 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
votes
2answers
49 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 ...
2
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3answers
67 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 ...
2
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1answer
42 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 ...
0
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0answers
20 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 ...
-1
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1answer
37 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....
2
votes
1answer
67 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 ...
1
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2answers
106 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 ...
1
vote
1answer
229 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?
1
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0answers
342 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.
...
0
votes
1answer
36 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 ...
1
vote
2answers
188 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 ...
2
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0answers
202 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
votes
1answer
272 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 ...
2
votes
0answers
147 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 $...
3
votes
2answers
120 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 ...
2
votes
2answers
165 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 ...
6
votes
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 (...
3
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1answer
306 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
votes
1answer
290 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
votes
1answer
342 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 ...
1
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1answer
299 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 ...
2
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1answer
258 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 ...
7
votes
2answers
156 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 ...
2
votes
1answer
434 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 ...
7
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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 ...
0
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0answers
192 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 ...
5
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1answer
290 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 ...
4
votes
1answer
278 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 ...
6
votes
1answer
211 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 ...
6
votes
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 ...
5
votes
1answer
568 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 ...
5
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0answers
52 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
87 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 ...
8
votes
1answer
296 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 ...
14
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2answers
1k 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 ...
