Economics Chapter 5 Notes
Economics Chapter 5 Notes Economics 1051
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This 0 page Class Notes was uploaded by Ashley Albers on Thursday February 11, 2016. The Class Notes belongs to Economics 1051 at University of Missouri - Columbia taught by George Chikhladze,Martha Steffens in Spring 2016. Since its upload, it has received 12 views. For similar materials see General Economics in Economcs at University of Missouri - Columbia.
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Date Created: 02/11/16
Chapter 5 Market Failures Public Goods and Externalities Market Failures 0 Market fails to produce the right amount of the product 0 Resources may be 0 Overallocated o Underallocated Or 0 Too much of undesirable activity takes place 0 Too little of desirable activity takes place Demandside failures 0 Impossible to charge consumers what they are willing to pay for the product 0 Some can enjoy bene ts without paying 0 As a result private markets or producers may supply it in insuf cient quantities or may not supply it all 0 Example reworks government provides them because no one private rm would be able to pay for a public event like that taxes Supplyside failures 0 Occurs when a rm does not pay the full cost of producing its output 0 External costs of producing the good are not re ected in supply 0 As a result private markets or producers may produce in too much quantities or overuse the resource 0 Examples oceans overcrowded highways smoking smoker only takes into account their own risks failed to look at second hand smoke Private Goods Characteristics 0 Produced in the market by rms 0 Offered for sale 0 Characteristics Rivalry If you enjoy it someone else cant Excludability Public Goods Characteristics 0 Provided by government Offered for free 0 Characteristics Nonrivalry 0 Same thing multiple people get to enjoy no rivalry Nonexcludability No way to effectively exclude someone from using Freerider problem ie public defense national security if this was private rm no one would pay for it 0 Common Goods Characteristics 0 Rival in consumption 0 Nonexcludability o Tragedy of Commons 0 Since market participants cannot be excluded feasibly from using the resource it result in over using or depleting the resource Externalities o A cost of bene t accruing to a third party external to the transaction 0 Positive externalities Too little is produced Education vaccination 0 Negative externalitites Too much is provided Pollution crowded highways Which of the following markets is likely to be characterized by substantial positive externalities u vaccine 0 Government intervention Correct negative externalities Direct controls 0 Speci c taxes Correct positive externalities Subsidies and government provision Apportioning the tax burden Size distribution and impact of the costs that taxes impose on society 0 Bene tsreceived principle 0 Abilitytopay principle 0 Progressive proportional and regressive taxes 0 Progressive tax average tax rates increase as income increases 0 Regressive tax average tax rate declines as income increases O Proportional tax average rate stays the same as income increase 0 Tax Progressivity in the US 0 00 Personal income tax tax falls on the household or individual on which it is levied Federal and State Progressive Payroll taxes workers pay the full tax levied on their earnings and part of the tax levied on their employers Regressive social security 42 on rst 110000 and Medicare 145 for all income Corporate tax shortrun full tax falls on owners of the businesses longrun some of the tax may be borne by workers through lower wages Progressive or proportional corps treated like individuals Sales tax tax falls on consumers who buy the taxed products Regressive because high income families don t spend as much they don t pay as much sales tax Speci c excise taxes taxes fall on consumers producers or both depending on elasticity of supply and demand alcohol Property taxes taxes falls on owners in the case of land and owneroccupied residences tenants in the case of rented property Regressive everyone s home value differs Federal tax system is progressive State and local tax structures are largely regressive Overall US tax system is progressive
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