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Week 6 Lecture Notes - Chapter 5

by: Caroline Jok

Week 6 Lecture Notes - Chapter 5 ECON 1011

Marketplace > George Washington University > Economcs > ECON 1011 > Week 6 Lecture Notes Chapter 5
Caroline Jok
GPA 3.8
Principles of Economics I
Foster, I

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About this Document

Professor Foster Externalities Chapter 5
Principles of Economics I
Foster, I
Class Notes
Economics, Microeconomics, Foster, externalities
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This 2 page Class Notes was uploaded by Caroline Jok on Thursday October 8, 2015. The Class Notes belongs to ECON 1011 at George Washington University taught by Foster, I in Fall 2015. Since its upload, it has received 19 views. For similar materials see Principles of Economics I in Economcs at George Washington University.


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Date Created: 10/08/15
Foster Econ 1011 08102015 Who is the tax imposed on This is called tax imposition It doesn t matter who the tax is imposed on for Tax Ef ciency Who paid the tax Tax Incidence How much did the buyers pay how much did the sellers pay Price now Price equilibrium burden on buyers Equilibrium price Price receiving now burden on sellers More vertical demand inelastic 9 Buyers pay more Demand shift imposition on Buyers Supply Shift Imposition on Sellers Market Ef ciency Is the market more ef cient with a tax 9 No Tax provides dead weight loss Tax Ef ciency 9 Compare tax revenue with the Deadweight loss caused by the tax tax less than relatively inef cient Externalities Ch 5 Markets are usually a good way to organize economy activity the competitive market out come is the most ef cient and maximizes total surplus HOWEVER the market may fail if transactions have side effects that affects third parties There are consumption and production externalities 0 Bene ts and negatives Self interested buyers and sellers and neglect the external costsbenef1ts so the the market is actually not ef cient Externality Can be positive or negative Welfare Economics Demand curve re ects private marginal benefit The supply curve re ects private marginal cost 0 External Cost I Amount of negative impact on bystanders I Ex 1 per gallon harm from smoggreen house gases 0 Social marginal cost curve PMC external cost 9 new curve that shows the socially efficient cost and quantity 0 This is why the equilibrium ISN T necessarily he most efficient 0 Dead weight loss occurs if you continue to produce at equilibrium despite knowing the negative externality Private solutions to externalities The Coast Theorem 0 Private sector solutions are possible if there are clearly defined property rights andor costless bargaining No transaction costs


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