Economics 201 week 7 notes
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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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