# Questions tagged [externalities]

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• 93
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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 $$p_x x_a+p_y y_a=e_a.$$ ...
• 93
59 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 ...
• 101
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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 ...
• 143
1 vote
107 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 ...
• 149
109 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 ...
• 61
1 vote
99 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 ...
• 61
219 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 ...
• 23
1 vote
172 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 ...
• 13
46 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 ...
• 8,287
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 ...
143 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?
1 vote
43 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 ...
134 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, ...
• 143
1 vote
26 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 ...
• 383
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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. ...
• 131
97 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 ...
• 54.4k
151 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 ...
• 821
1 vote
94 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 ...
• 264
108 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 ...
• 131
45 views

### Optimizing Lagrangian Function Subject to 4 Input/Output Constraints:

The objective function: $$\text{utility}=U\left(x_{c}, y_{c}\right)$$ subject to, $x_{o}=f\left(y_{i}\right)$ $y_{o}=g\left(x_{i}, x_{o}\right)$ $x_{c}+x_{i}=x_{o}+x^{*}$ $y_{c}+y_{i}=y_{o}+y^{*}$ ...
• 264
588 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 ...
• 123
72 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 ...
28 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 ...
1 vote
49 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 ...
• 13
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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 ...
174 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 ...
• 103
1 vote
84 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, ...
• 125
2k 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 ...
• 205
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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 ...
123 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 ...
• 155
29 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 ...
• 147
81 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....
484 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 ...
• 143
1 vote
159 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 ...
• 11
1 vote
764 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?
• 113
1 vote
632 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. ...
• 11
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 ...