Externalities SFLS part1
-
Upload
ianhorner3 -
Category
Education
-
view
685 -
download
0
Transcript of Externalities SFLS part1
![Page 1: Externalities SFLS part1](https://reader035.fdocuments.us/reader035/viewer/2022070600/58a2b1001a28ab5d408b52e5/html5/thumbnails/1.jpg)
Externalities
Part 1
![Page 2: Externalities SFLS part1](https://reader035.fdocuments.us/reader035/viewer/2022070600/58a2b1001a28ab5d408b52e5/html5/thumbnails/2.jpg)
Market FailureOne type of market failure:
Externality, the uncompensated impact of one person’s actions on the well-being of a bystander.
Self-interested buyers and sellers neglect the external costs or benefits of their actions on society, so the market outcome is not efficient for everyone.
Externalities can be negative or positive, depending on whether impact on bystander is adverse or beneficial. (good or bad)
![Page 3: Externalities SFLS part1](https://reader035.fdocuments.us/reader035/viewer/2022070600/58a2b1001a28ab5d408b52e5/html5/thumbnails/3.jpg)
Textbook definition: - is a cost or a benefit that arises from:Production that falls on someone other
than the producer.Consumption that falls on someone other
than the consumer.
Shorter definition: - the uncompensated 无补偿的 impact of
one person’s actions on the well-being of a bystander or third party.
Easier definition: - Stuff that affects other people.
Externalities
![Page 4: Externalities SFLS part1](https://reader035.fdocuments.us/reader035/viewer/2022070600/58a2b1001a28ab5d408b52e5/html5/thumbnails/4.jpg)
1.) Externality Types2.) The Graphs3.) Solutions
Market Failure - Externalities
![Page 5: Externalities SFLS part1](https://reader035.fdocuments.us/reader035/viewer/2022070600/58a2b1001a28ab5d408b52e5/html5/thumbnails/5.jpg)
Negative Externalities - Unintended costs.
- A production or consumption activity that creates an external cost.
Negative consumption
Negative production
1.) Externality Types
![Page 6: Externalities SFLS part1](https://reader035.fdocuments.us/reader035/viewer/2022070600/58a2b1001a28ab5d408b52e5/html5/thumbnails/6.jpg)
Negative consumption
Negative production
1.) Externality Types
![Page 7: Externalities SFLS part1](https://reader035.fdocuments.us/reader035/viewer/2022070600/58a2b1001a28ab5d408b52e5/html5/thumbnails/7.jpg)
Negative consumption
Negative production
1.) Externality Types
![Page 8: Externalities SFLS part1](https://reader035.fdocuments.us/reader035/viewer/2022070600/58a2b1001a28ab5d408b52e5/html5/thumbnails/8.jpg)
Negative consumption
Negative production
1.) Externality Types
![Page 9: Externalities SFLS part1](https://reader035.fdocuments.us/reader035/viewer/2022070600/58a2b1001a28ab5d408b52e5/html5/thumbnails/9.jpg)
Negative consumption
Negative production
1.) Externality Types
![Page 10: Externalities SFLS part1](https://reader035.fdocuments.us/reader035/viewer/2022070600/58a2b1001a28ab5d408b52e5/html5/thumbnails/10.jpg)
Demerit Goods - Goods with negative externalities and considered socially undesirable.
1.) Externality Types
![Page 11: Externalities SFLS part1](https://reader035.fdocuments.us/reader035/viewer/2022070600/58a2b1001a28ab5d408b52e5/html5/thumbnails/11.jpg)
Positive Externalities
Positive consumption
Positive production
1.) Externality Types
- Unintended benefits.- A production or
consumption activity that creates an external benefit.
![Page 12: Externalities SFLS part1](https://reader035.fdocuments.us/reader035/viewer/2022070600/58a2b1001a28ab5d408b52e5/html5/thumbnails/12.jpg)
Positive consumption Positive production 1.) Externality Types
疫苗
![Page 13: Externalities SFLS part1](https://reader035.fdocuments.us/reader035/viewer/2022070600/58a2b1001a28ab5d408b52e5/html5/thumbnails/13.jpg)
Positive consumption Positive production 1.) Externality Types
![Page 14: Externalities SFLS part1](https://reader035.fdocuments.us/reader035/viewer/2022070600/58a2b1001a28ab5d408b52e5/html5/thumbnails/14.jpg)
Positive consumption Positive production 1.) Externality Types
![Page 15: Externalities SFLS part1](https://reader035.fdocuments.us/reader035/viewer/2022070600/58a2b1001a28ab5d408b52e5/html5/thumbnails/15.jpg)
Positive consumption Positive production 1.) Externality Types
![Page 16: Externalities SFLS part1](https://reader035.fdocuments.us/reader035/viewer/2022070600/58a2b1001a28ab5d408b52e5/html5/thumbnails/16.jpg)
Positive consumption Positive production 1.) Externality Types
![Page 17: Externalities SFLS part1](https://reader035.fdocuments.us/reader035/viewer/2022070600/58a2b1001a28ab5d408b52e5/html5/thumbnails/17.jpg)
Merit Goods
1.) Externality TypesGoods with positive
externalities of which more is desired then would typically be produced.
![Page 18: Externalities SFLS part1](https://reader035.fdocuments.us/reader035/viewer/2022070600/58a2b1001a28ab5d408b52e5/html5/thumbnails/18.jpg)
1.) Externality Types2.) The Graphs
Market Failure - Externalities
2.1) Negative2.2) Positive
3.) Solutions
![Page 19: Externalities SFLS part1](https://reader035.fdocuments.us/reader035/viewer/2022070600/58a2b1001a28ab5d408b52e5/html5/thumbnails/19.jpg)
Means an additional one, the measurement from one unit to the next. 最后的东西之一
Marginal Benefits VS. Marginal Costs 边际效益 针对 边际成本 (MB) (MC)
If MB > MC = It is worth doing 这是值得的If MB = MC = It may be worth doing “a wash” 收支平衡If MB < MC = Not worth doing 这是不值得的
Also called Cost/Benefit analysis
Marginal Thinking
![Page 20: Externalities SFLS part1](https://reader035.fdocuments.us/reader035/viewer/2022070600/58a2b1001a28ab5d408b52e5/html5/thumbnails/20.jpg)
– Training your brain to understand value训练你的大脑明白什么意思值
Marginal Benefit
Marginal Thinking
The value of one more unit of a good or service is its marginal benefit. can be measured as
the maximum price that people are willing to pay for another unit of the good or service.
Demand and Marginal Benefit
- Buyers distinguish 区别 between value and price.- Value is what the buyer gets.- Price is what the buyer pays.
![Page 21: Externalities SFLS part1](https://reader035.fdocuments.us/reader035/viewer/2022070600/58a2b1001a28ab5d408b52e5/html5/thumbnails/21.jpg)
If we looked at a larger market with many more buyers, each would be a step on this curve
It looks just like a demand curve doesn’t itThat’s because it is!
D = MB
P
Q
Demand = Marginal Benefit
Remember this?
![Page 22: Externalities SFLS part1](https://reader035.fdocuments.us/reader035/viewer/2022070600/58a2b1001a28ab5d408b52e5/html5/thumbnails/22.jpg)
Means an additional one, the measurement from one unit to the next. 最后的东西之一
Marginal Benefits VS. Marginal Costs 边际效益 针对 边际成本 (MB) (MC)
If MB > MC = It is worth doing 这是值得的If MB = MC = It may be worth doing “a wash” 收支平衡If MB < MC = Not worth doing 这是不值得的
Also called Cost/Benefit analysis
Marginal Thinking
![Page 23: Externalities SFLS part1](https://reader035.fdocuments.us/reader035/viewer/2022070600/58a2b1001a28ab5d408b52e5/html5/thumbnails/23.jpg)
Means an additional one, the measurement from one unit to the next. 最后的东西之一
Marginal Social Benefits VS. Marginal Social Costs 边际效益 针对 边际成本 (MB) (MC)
If MSB > MSC = It is worth doing 这是值得的If MSB = MSC = It may be worth doing “a wash” 收支平衡If MSB < MSC = Not worth doing 这是不值得的
Also called Cost/Benefit analysis
Marginal Thinking
![Page 24: Externalities SFLS part1](https://reader035.fdocuments.us/reader035/viewer/2022070600/58a2b1001a28ab5d408b52e5/html5/thumbnails/24.jpg)
( MPC ) Marginal Private Cost ( MC )
- The cost of producing an additional unit of a good or service that is borne by the producer of it.*Supply =MC = MPC
2.) The Graphs
![Page 25: Externalities SFLS part1](https://reader035.fdocuments.us/reader035/viewer/2022070600/58a2b1001a28ab5d408b52e5/html5/thumbnails/25.jpg)
P
QMB
P
MC = MPCMarginal Costs = Marginal Private Costs
EQ
MC - Typical market equilibrium that we have studied so far.
2.) The Graphs
![Page 26: Externalities SFLS part1](https://reader035.fdocuments.us/reader035/viewer/2022070600/58a2b1001a28ab5d408b52e5/html5/thumbnails/26.jpg)
( MPC ) Marginal Private Cost ( MC )
2.) The Graphs
( MEC ) Marginal External Cost
- The cost of producing an additional unit of a good or service that falls on people other than the producer.*** The more
produced the higher the costs.
![Page 27: Externalities SFLS part1](https://reader035.fdocuments.us/reader035/viewer/2022070600/58a2b1001a28ab5d408b52e5/html5/thumbnails/27.jpg)
P
QMB
P
MECMarginal External Costs
Negative Externalities
- At any given output the external costs to all are higher then the private costs
- The more that is produced the higher the costs become
EQ
External cost
MC
![Page 28: Externalities SFLS part1](https://reader035.fdocuments.us/reader035/viewer/2022070600/58a2b1001a28ab5d408b52e5/html5/thumbnails/28.jpg)
( MPC ) Marginal Private Cost ( MC )
2.) The Graphs
( MEC ) Marginal External Cost
( MSC ) Marginal Social Cost
+
=- The marginal
cost incurred by the entire society
![Page 29: Externalities SFLS part1](https://reader035.fdocuments.us/reader035/viewer/2022070600/58a2b1001a28ab5d408b52e5/html5/thumbnails/29.jpg)
P
QMB
MSCMarginal Social CostsMPC + MEC = MSC
The marginal cost incurred by the entire society – everyone – the people that produce it and all other third parties affected by it
External cost
MSC
MC
2.) The Graphs
![Page 30: Externalities SFLS part1](https://reader035.fdocuments.us/reader035/viewer/2022070600/58a2b1001a28ab5d408b52e5/html5/thumbnails/30.jpg)
P
QMB
P
EQ
External cost
MSC
MC
The MPC production point is not efficient from a societal view, too much is produced.
MB = MSC is the efficientproduction point
froma societal view.
EQ1
P1
2.) The Graphs
![Page 31: Externalities SFLS part1](https://reader035.fdocuments.us/reader035/viewer/2022070600/58a2b1001a28ab5d408b52e5/html5/thumbnails/31.jpg)
P
Q
P
Deadweight loss occurs for society at MPB.
The marginal cost incurred by the entire society – everyone – the people that produce it and all other third parties affected by itEQ
MSC
MC
MB=MPB
P1
EQ1
2.) The Graphs
![Page 32: Externalities SFLS part1](https://reader035.fdocuments.us/reader035/viewer/2022070600/58a2b1001a28ab5d408b52e5/html5/thumbnails/32.jpg)
0
1
2
3
4
5
0 10 20 30 Q (gallons)
P $
The market for gasoline
Another Example of a Negative Externality:
Supply (private cost)
External cost = value of the negative
impact on bystanders
= $1 per gallon(value of harm from smog, greenhouse gases)
Social cost = private + external cost
![Page 33: Externalities SFLS part1](https://reader035.fdocuments.us/reader035/viewer/2022070600/58a2b1001a28ab5d408b52e5/html5/thumbnails/33.jpg)
0
1
2
3
4
5
0 10 20 30 Q (gallons)
P $
The market for gasoline
D
S
The socially optimal quantity is 20 gallons.
At any Q < 20, value of additional gas is higher then social cost. At any Q > 20, social cost of the last gallon isgreater than its value to society.25
Demand
Private
cost
Social Cost
Another Example of a Negative Externality:
![Page 34: Externalities SFLS part1](https://reader035.fdocuments.us/reader035/viewer/2022070600/58a2b1001a28ab5d408b52e5/html5/thumbnails/34.jpg)
0
1
2
3
4
5
0 10 20 30 Q (gallons)
P $
The market for gasoline
D
S
The socially optimal quantity is 20 gallons.
At any Q < 20, value of additional gas is higher then social cost.
25
Demand And there is a deadweight loss
Private
cost
Social Cost
Another Example of a Negative Externality:
![Page 35: Externalities SFLS part1](https://reader035.fdocuments.us/reader035/viewer/2022070600/58a2b1001a28ab5d408b52e5/html5/thumbnails/35.jpg)
0
1
2
3
4
5
0 10 20 30 Q (gallons)
P $
The market for gasoline
D
S
The socially optimal quantity is 20 gallons.
At any Q > 20, social cost of the last gallon isgreater than its value to society.
25
Demand And there is a deadweight loss
Private
cost
Social Cost
Another Example of a Negative Externality:
![Page 36: Externalities SFLS part1](https://reader035.fdocuments.us/reader035/viewer/2022070600/58a2b1001a28ab5d408b52e5/html5/thumbnails/36.jpg)
1.) Externality Types2.) The Graphs
Market Failure - Externalities
2.1) Negative2.2) Positive
3.) Solutions
![Page 37: Externalities SFLS part1](https://reader035.fdocuments.us/reader035/viewer/2022070600/58a2b1001a28ab5d408b52e5/html5/thumbnails/37.jpg)
( MPB ) Marginal Private Benefits ( MB )
2.) The Graphs- The benefit of an
additional unit of a good or service that the consumer of that good or service receives.
*Demand = MB = MPB
![Page 38: Externalities SFLS part1](https://reader035.fdocuments.us/reader035/viewer/2022070600/58a2b1001a28ab5d408b52e5/html5/thumbnails/38.jpg)
P
QMB
P
MB = MPBMarginal Benefits = Marginal Private Benefits
- Typical market equilibrium that we have studied so far.
EQ
MC
2.) The Graphs
![Page 39: Externalities SFLS part1](https://reader035.fdocuments.us/reader035/viewer/2022070600/58a2b1001a28ab5d408b52e5/html5/thumbnails/39.jpg)
( MPB ) Marginal Private Benefits ( MB )
2.) The Graphs
- The benefit of an additional unit of a good or service that people other than the consumer of the good or service enjoy.
( MEB ) Marginal External Benefit
*** The more consumed the benefits diminish.
![Page 40: Externalities SFLS part1](https://reader035.fdocuments.us/reader035/viewer/2022070600/58a2b1001a28ab5d408b52e5/html5/thumbnails/40.jpg)
P
Q
P
MEBMarginal External Benefits
- At any given point the external benefits of society are greater then that of the individual
- As more is produced the benefits typically become smaller
EQ
External benefit
MC
MB
2.) The Graphs
![Page 41: Externalities SFLS part1](https://reader035.fdocuments.us/reader035/viewer/2022070600/58a2b1001a28ab5d408b52e5/html5/thumbnails/41.jpg)
( MPB ) Marginal Private Benefits ( MB )
2.) The Graphs
( MEB ) Marginal External Benefit
- The marginal benefit enjoyed by society.
( MSB ) Marginal Social Benefit
+
=
![Page 42: Externalities SFLS part1](https://reader035.fdocuments.us/reader035/viewer/2022070600/58a2b1001a28ab5d408b52e5/html5/thumbnails/42.jpg)
P
Q
P
MSBMarginal Social Benefits
- The cost of producing an additional unit of a good or service that falls on people other than the producer.EQ
External benefit
MC
MB
MSBMPB + MEB =
MSC
2.) The Graphs
![Page 43: Externalities SFLS part1](https://reader035.fdocuments.us/reader035/viewer/2022070600/58a2b1001a28ab5d408b52e5/html5/thumbnails/43.jpg)
P
Q
P
EQ
MCMSB
P1
EQ1
MB = MPB
The MPB production point is not efficient from a societal view, not enough is produced.
MC = MSB is the efficientproduction point
froma societal view.
2.) The Graphs
![Page 44: Externalities SFLS part1](https://reader035.fdocuments.us/reader035/viewer/2022070600/58a2b1001a28ab5d408b52e5/html5/thumbnails/44.jpg)
P
Q
P
EQ
MCMSB
P1
EQ1
MB = MPB
Deadweight loss occurs for society at MPB.
Not enough is produced from the view from society
2.) The Graphs
![Page 45: Externalities SFLS part1](https://reader035.fdocuments.us/reader035/viewer/2022070600/58a2b1001a28ab5d408b52e5/html5/thumbnails/45.jpg)
Negative Externality- Market quantity larger than socially desirable- Overproduction
Positive Externality- Market quantity smaller than socially desirable- Underproduction
Next:To remedy the problem: “internalize the externality” 内部化的外部性 tax goods with negative externalities subsidize goods with positive externalities Create government regulation and laws to prevent the problem
Effects of Externalities: Summary
![Page 46: Externalities SFLS part1](https://reader035.fdocuments.us/reader035/viewer/2022070600/58a2b1001a28ab5d408b52e5/html5/thumbnails/46.jpg)
So to Summarize….
![Page 47: Externalities SFLS part1](https://reader035.fdocuments.us/reader035/viewer/2022070600/58a2b1001a28ab5d408b52e5/html5/thumbnails/47.jpg)
Means an additional one, the measurement from one unit to the next. 最后的东西之一
Marginal Benefits VS. Marginal Costs 边际效益 针对 边际成本 (MB) (MC)
If MB > MC = It is worth doing 这是值得的If MB = MC = It may be worth doing “a wash” 收支平衡If MB < MC = Not worth doing 这是不值得的
Also called Cost/Benefit analysis
Marginal Thinking
![Page 48: Externalities SFLS part1](https://reader035.fdocuments.us/reader035/viewer/2022070600/58a2b1001a28ab5d408b52e5/html5/thumbnails/48.jpg)
Means an additional one, the measurement from one unit to the next. 最后的东西之一
Marginal Social Benefits VS. Marginal Social Costs 边际效益 针对 边际成本 (MB) (MC)
If MSB > MSC = It is worth doing 这是值得的If MSB = MSC = It may be worth doing “a wash” 收支平衡If MSB < MSC = Not worth doing 这是不值得的
Also called Cost/Benefit analysis
Marginal Thinking
![Page 49: Externalities SFLS part1](https://reader035.fdocuments.us/reader035/viewer/2022070600/58a2b1001a28ab5d408b52e5/html5/thumbnails/49.jpg)
P
QMB
P
EQ
External cost
MSC
MC
The MPC production point is not efficient from a societal view, too much is produced.
MB = MSC is the efficientproduction point
froma societal view.
EQ1
P1
2.) The Graphs
![Page 50: Externalities SFLS part1](https://reader035.fdocuments.us/reader035/viewer/2022070600/58a2b1001a28ab5d408b52e5/html5/thumbnails/50.jpg)
P
Q
P
Deadweight loss occurs for society at MPB.
The marginal cost incurred by the entire society – everyone – the people that produce it and all other third parties affected by itEQ
MSC
MC
MB=MPB
P1
EQ1
2.) The Graphs
![Page 51: Externalities SFLS part1](https://reader035.fdocuments.us/reader035/viewer/2022070600/58a2b1001a28ab5d408b52e5/html5/thumbnails/51.jpg)
P
Q
P
EQ
MCMSB
P1
EQ1
MB = MPB
The MPB production point is not efficient from a societal view, not enough is produced.
MC = MSB is the efficientproduction point
froma societal view.
2.) The Graphs
![Page 52: Externalities SFLS part1](https://reader035.fdocuments.us/reader035/viewer/2022070600/58a2b1001a28ab5d408b52e5/html5/thumbnails/52.jpg)
P
Q
P
EQ
MCMSB
P1
EQ1
MB = MPB
Deadweight loss occurs for society at MPB.
Not enough is produced from the view from society
2.) The Graphs
![Page 53: Externalities SFLS part1](https://reader035.fdocuments.us/reader035/viewer/2022070600/58a2b1001a28ab5d408b52e5/html5/thumbnails/53.jpg)
Goods with ExternalitiesDemerit Goods Goods with negative
externalities and considered socially undesirable.
Merit Goods Goods with positive externalities of which more is desired then would typically be produced.
![Page 54: Externalities SFLS part1](https://reader035.fdocuments.us/reader035/viewer/2022070600/58a2b1001a28ab5d408b52e5/html5/thumbnails/54.jpg)
The End
Thanks!