Questions tagged [externalities]
The externalities tag has no usage guidance.
76 questions
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Why are public goods directly provided by the government while positive externalities are subsidized?
Public goods and goods with positive externalities are closely related. However, the policy solution to public goods generally seems to be the government provision of the good (e.g., national defense, ...
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Best Practices for Isolating Specific Indirect Benefits
Provided: Policy A provides economic incentives to buyers for making purchase of a given technology (At). Policy A's incentive payments are funded through a tax on buyers in adjacent markets; demand ...
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Negative externality in consumption to a Cobb Douglas utility function
I am performing a brief analysis with a Computable General Equilibrium Model approach. I want to apply a negative externality in consumption to a Cobb Douglas utility function, any idea to do it and ...
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What precisely is bad about externalities?
I'm a layperson with some (long ago) college economics under my belt who is curious about externalities. In particular, why are externalities bad? Intuitively I personally agree externalities are &...
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Are ALL externalities inefficient?
Suppose Frank owns a factory which creates noise that disturbs nearby homeowner Hank. This noise pollution is an externality. Is it also necessarily Pareto inefficient? If I recall my college ...
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How do I derive optimal tax on pollution causing intermediate products?
I am reading "The Environment and Directed Technical Change" by Acemoglu et al. (2012).
I cannot understand how the optimal tax in \eqref{eqA10} is derived.
$$\tau_t = \frac{\omega_{t+1} \xi}...
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Why do Austrians oppose market failure and demand management as policy rationales?
Predominantly free market and small government, albeit with room for redistrbution and funding of health care and education, Austrians stress the planning fallacy, emergent order, and incentives ...
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Should firecrackers which disturb neighbours be a production externality or consumption externality?
I am given a question to plot supply-demand for firecrackers. Bursting firecrackers produce noise so we have plot the externality in the graph.
In the answer key, it is given that due to the noise, ...
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Positional externalities - Are marketing and higher education examples of market failure?
As Mankiw explains in chapter 10 of the latest edition of Economics (chapter 9 in the previous few, I believe).
Positional externalities lead to "a professional squash player getting the extra ...
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Trying to understand externality
I am trying to understand about externality in simple words, the book is quite confusing. So I wanted to know how externality makes the demand curve or supply curve shift attached the below diagram ...
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What can be done when pigouvian taxes must be so high that black markets become viable?
The whole point of a pigouvian tax is to force producers to bear an extra cost equal to the total social cost of a good right? But, the problem this presents is, what if the social cost is very high? ...
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Is there a name for the phenomenon where a company supposedly in industry A actually gets most of its revenue from industry B?
McDonald's is a fast food company, but actually gets most of its revenue from real estate.
Similarly, Hong Kong's Mass Transit Railway (MTR) makes >50% of its revenue from real estate, rather than ...
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What does the price-quantity diagram of a good with both negative production and consumption externalities look like?
The good in this case is coal, which I assume has both production and consumption externalities?
I haven't been able to find a price-quantity diagram on google so far depicting such a case, with ...
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What are good analogies for explaining negative externalities?
I'm making an infographic about the negative externalities of driving, and I want to explain that taxation is not "just" a tool to get a desired effect; it's a price-correcting mechanism ...
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At what level should I cluster my standard errors and why?
I have a yearly panel data in which each observation is a pair of monitoring stations (stations measuring water quality in rivers) one located upstream and the other downstream, each station in the ...
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Positive externalities of cars - free seats on public transport
I was in a discussion about externalities surrounding private and public transport.
Someone argued that by taking a car they are creating a positive externality by not taking up a seat on a bus or ...
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Solving for the efficient subsidy amount with an externality
I am dealing with a problem that is set up as follows: Actors A and B get utility from consumption ($c_i$) and disutility from safety measures ($s_i$), however their chance of getting sick is reduced ...
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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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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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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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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 ...
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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 ...
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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 ...
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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 ...
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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 ...
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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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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?
user31214
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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 ...
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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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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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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. ...
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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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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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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 ...
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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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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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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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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 ...
user14083
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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 ...
user14083
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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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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 ...
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(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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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, ...
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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 ...
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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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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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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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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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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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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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