The undercover economist
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Transcript of The undercover economist
April 15, 2023 The Undercover EconomistChapter-4 2
Crosstown Traffic
Team-16J.Jeyalakshmi
R.RachelT.Saravanan
M.Surya Prakash
8 October 2014 The Undercover EconomistChapter-4 3
Happy man’s 3 Wishes
ExternalitySide effect to buy standers
Wish
Never to upgrade
Computer Software
Doctor gives appropriate treatment
WashingtonWithout Pollution
Reality We have no idea of
Doctor’s treatment
EXTERNALITY
April 15, 2023 The Undercover EconomistChapter-4 4
Prices-Marginal & Average
UNIVERSITY TRAFFIC CONGESTION
Better orange juice Better trains, cycles, routes, pedestrian crossings
Scrapping upfront fees and charging people for what they drink
Scrapping upfront fees and charging people for what they drive
April 15, 2023 The Undercover EconomistChapter-4 5
Pricing should reflect Damage
Externality charging needs to strike right balance between pleasure and trouble
Urban Drive Vs Rural DriveMaking someone better off & No one worse
offMarginal Price should reflect externality
cost
April 15, 2023 The Undercover EconomistChapter-4 6
2 objections to Externality Charges
Unfair tax aimed at poor drivers off the road
Rich drivers afford to drive more and cause more environmental damage
Poor people use bicycle , walk or take bus
Poor people drive a lot pay large amount of tax
Congestion Charge is true Congestion Charge is Useless
April 15, 2023 The Undercover EconomistChapter-4 7
Moral high ground of Environmentalism
Pollution is illegal for poor and affordable for rich
Why the rich should be allowed to pollute? People take advantage of externality chargePartial response- rich do not pollute for fun
they do sensible trip
April 15, 2023 The Undercover EconomistChapter-4 9
Is Life Worth??
Ideal Externality Charge addresses all the real external and only the real external charges
Drivers---------- Charged---------- Densely populated area
Drivers---------- Charged---------- For emitted pollutants in every trip
Computers in car- Measure – Congestion, Pollution
Cannot Measure – People’s time Making Decision putting Value on our environment
Eg: not buying smoke alarm-increasing chances to die
April 15, 2023 The Undercover EconomistChapter-4 11
Is Life Worth?
Preference is not just deduced but actually defined by choices
People Prefer on HOUSE PRICE & WAGES
Nobody has best interest at heart quite as much as you do yourself !!!
April 15, 2023 The Undercover EconomistChapter-4 12
New Orleans Effect
Congestion Charging change small decisions
Externality Pricing attacks the problem but makes no assumption about the solution
Camelback House
April 15, 2023 The Undercover EconomistChapter-4 13
Battling Pollution-Sulphur
sulphur emission sulphur scrubber
Power Generators initial resistance arguing Sulphur Scrubbers are expensive
EPA auctions for right to emit Sulphur dioxide
April 15, 2023 The Undercover EconomistChapter-4 14
Battling Pollution-Sulphur Contd.
Companies installed willingly rather than buying permits
Carbon Emission – Similar auction recommended by economists
April 15, 2023 The Undercover EconomistChapter-4 15
Handling of ExternalitiesTree Plantation- Neutralization-Not certain
of chargesPositive Externality – Beautifying apartment
bringing pleasure to streets – no rewardNegative Externality – paying for tax
pollutant Too much of Positive Externality-
eg:Tree&Wall , I become richer/ Neighbor becomes richer