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Economics 201 week 7 notes

by: Katie Conner

Economics 201 week 7 notes Econ 201

Marketplace > Economcs > Econ 201 > Economics 201 week 7 notes
Katie Conner

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About this Document

Notes covering public policy, externality, common resources, and public goods
Intro Economics: Survey Course
Donna Bueckman
Class Notes
Econ, Economics, Econ 201, economics 201, intro to econ, Intro to Economics
25 ?




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This 3 page Class Notes was uploaded by Katie Conner on Sunday February 28, 2016. The Class Notes belongs to Econ 201 at a university taught by Donna Bueckman in Spring 2016. Since its upload, it has received 30 views.


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Date Created: 02/28/16
Notes week 7 Public Goods Free rider­ a person who receives the benefit of a good but does not pay for it; can result in a  good not being produced  Benefit > Cost ­government should provide the good ­paid for by taxing people who benefit from it Cost­Benefit analysis ­study that compares costs and benefits of providing a good ­sometimes difficult to measure benefits of a public good ­can be imprecise  Common Resources ­not excludable (can’t prevent free riders) ­rival in consumption (each person’s use reduces others’ ability to use) ­government ensures they aren’t over used The Tragedy of the Commons­ Garett Hardin 1968 ­The private incentives (like using land for free) outweigh the social incentives (like  using the land carefully) ­The tragedy is due to an externality: allowing one’s flock to graze on the common land  reduces its quality for other flocks ­People neglect this external cost resulting in overuse of land Policy options to prevent overconsumption of common resources ­regulate use of resource (command and control) ­impose a corrective tax to internalize the externality ­auction off permits allowing use of the resource ­convert to a private good Externalities Competitive markets: ­are efficient ­maximize total surplus  ­work Assumptions ­perfect information ­no market failure Market failure­ when the market fails to allocate society’s resources efficiently Market power­ a single buyer or seller has influence on market price Externality­ the uncompensated impact of a market exchange on the well­being of a bystander;  can be negative or positive ­self­interested buyers and sellers neglect the external costs or benefits of their actions  (consumption and production) so the market outcome isn’t efficient ­negative example: pollution, consumption, noise pollution, distracted driving ­positive example: vaccines, research and development, education (things that the public  as a whole) ­with a positive externality, the social value of a good includes: ­private value: Willingness to pay (benefit) ­external benefit: value of a positive impact on bystanders ­if you have a negative externality, the market quantity is larger than socially desirable ­if you have a positive externality, the market quantity is smaller than desirable Internalizing the externality ­altering incentives so people consider the external effects of their actions Public policies towards externalities 1­command and control policies ­limits quantity of pollution emitted ­technology requirements ­requires immunizations 2­market based policies ­corrective taxes and subsidies ­tradeable pollution permits


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