...1 Chapter 16 Externalities Consumers and producers are internal to a transaction. Consumers receive a benefit from the goods they purchase, while producers pay the costs of production. An externality (sometimes called a spillover) is a cost or benefit that goes to someone external to a transaction. Pollution is a negative (cost) externality. Education and research create a positive externality. Externalities can result from consumption or production. 2 An Example: Suppose that the costs of raising livestock are mostly borne by the rancher, but there is a spillover cost. Streams nearby get polluted, and this affects people (and other species) who use the stream as well as spinach farmers who also use the water for irrigation. Ranchers will consider their own costs of production, but the costs to others could be greater than the surplus from cattle production. 1 3 Negative Externalities • If there is an external cost from production, the Marginal Social Cost is higher than the producer’s Marginal Cost (competitive Supply). • The competitive equilibrium will produce more than the optimal quantity for Society. • If there is an external cost to consumption, the Marginal Social Value is less than Demand. 4 Positive Externalities • If there is an external benefit from consumption, the Marginal Social Benefit is higher than consumer Demand. • The competitive equilibrium will produce less than the optimal quantity for Society. • If there is an external benefit...
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...Assignment 2: Externalities ECO 405 Prof Bergan August 11, 2013 An externality is something that, while it does not monetarily affect the producer of a good, does influence the standard of living of society as a whole (Kelly, Krugman, & Robin, 2008 ).There are two types of externalities positive and negative both play important roles in our everyday living. When there is a cost of externality than that is considered negative and when there is a benefit of an externality it is considered a positive externality. Positive externality is defined as benefits that accrue to third parties not involved in an economic activity. These benefits can be passed on due to either the consumption or production of a commodity by society (Kelly, Krugman, & Robin, 2008 ). Negative externalities are costs that third parties have to bear when a good is consumed or produced. Environmental cleanup can be considered as positive externalities. When the environment is clean we all benefit as a society but do not increase profits for the company responsible for it. Likewise, research and new technological developments create gains on which the company responsible for them cannot fully capitalize. Another positive externality is education when people are getting a better education this is a benefit for the country as a whole as more foreign direct investments will flow into the country. This will definitely increase employment and income for people who can’t find a job. Immunizations, such...
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...What is an externality? Provide at least three examples. How does one of the examples you provided affect the market outcome? What is the role of government in addressing the implications of an externality you provided as an example? Is it possible that a government’s solution to a market failure would worsen the failure? Explain your answer. Externality is defined as an effect of a decision on a third party not taken into account by the decision maker. There are two types of externalities being positive and negative. Second hand smoke would be a negative externality. The smoker does not take into account the smoke emitted from their cigarette. Education would be considered a positive externality. When an individual is educated, their employer benefits from your expertise on the matter that was studied. It also helps to employ teachers with jobs in order to educate us. Innovation is also a positive externality. The effects of innovation helps businesses become more efficient, in respects to technological innovation. Innovation affects market outcome. With Apple's determination of constant innovation, consumers are chomping at the bit for the next generation "iProduct." Each product surpasses the previous with updated features. The government has no role in addressing the sale of "iProducts," and their externalities. But if there were a market failure for these products, the government could intervene on their behalf. The government could implement a tax incentive program...
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...B. Consumers ability to substitute different goods The explanation for the law of demand involves: A. The markets ability to equate supply demand B. Consumers ability to substitute different goods C. The governments ability to set prices D.The suppliers ability to substitute inputs A. A normal good John estimates that with every 20% increase in income, the quantity of grapes purchased rises by 11.2%. From this information one would conclude that grapes are A. A normal good D. Not demanded C. An inferior good D. Luxury Star this term You can study starred terms together Play audio for this term C. Not maximizing revenue since elasticity is less than one and revenue will increase following a price increase when demand is inelastic In California the price elasticity for vanity license plates is .5 and their price is $29. California is: A. Maximizing revenue since elasticity is less then one and revenue will increase following a price increase when demand is inelastic B. Not maximizing revenue since elasticity is less than one and revenue will get decrease following a price increase when demand is inelastic. C. Not maximizing revenue since elasticity is less than one and revenue will increase following a price increase when demand is inelastic D. Maximizing revenue since elasticity is less than one and revenue will decrease following a price increase would demand is inelastic. C. Consumer surplus will decrease and there will be some...
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...rise to platform leadership, which is interesting as this is a recent and fascinating new area of research in economics. The remaining of this essay is organized into 3 sections. Section 2 explains the concept of network externalities, differentiates between direct and indirect network externalities, and explains the role of installed base and consumer expectations for products in the network market. The section then goes on to apply these concepts to platform markets to understand platform competition and how using the concept of critical mass a platform rises to dominance. Section 3 discusses some key business strategies applicable to platform markets. Section 4 concludes the analysis by extending a few strategy proposals as to how Google+ may possibly dominate in the social media market, where Facebook is currently dominant. Section 2: Products such as eBay are substantially different from ordinary products since they enjoy network externalities. Industry platforms are not under the full control of the innovator unlike ordinary products. An industry platform is the basic technology for a broader ecosystem of businesses, determining which complimentary innovations are required to make it useful. (Gawer and Cusumano, 2008, p.28) Network externality is the...
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...example of external benefit? a) Pollution from a manufacturing plant b) Public health policies mandating vaccinations c) Higher education d) Public health policies mandating vaccinations and higher education 5. Below is a Production Possibilities Frontier (PPC) for an economy. Which event would lead to the shift in the PPC curve from PPC0 to PPC1, (A) external benefits __ or (B) external cost __. [pic] 6. Since World War II, economic growth has been phenomenal and population has grown by leaps and bounds. Which of these is not a demand that population increase has placed on society? a) Improved living standard b) Energy issues c) Capacity of the environment to sustain the level of output d) Externalities on public goods 7. An externality is- a. The costs that parties incur...
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...AS Micro Essays These are some suggested AS Macro Economic essays. The essays are from different exam boards. In practise they ask similar questions. There are different ways to answer questions. But, all these answers contain enough material to get the top grade. Whenever the question requires evaluation, the essay contains the necessary critical distance. Note: These essays are for revision purposes giving suggestions for how to answer questions. Don’t try to pass them off as your own work. AS Micro Essays 1.Evaluate the case for and against governments intervening to try to stabilise the price of copper, for example, through setting up a buffer stock scheme. 2.Evaluate advantages and disadvantages of various methods of government intervention to correct market failure arising from aircraft emissions. 3. Discuss the likely effects on the retail market for coffee if there is a large increase in city centre rents. 4.In the UK, students face increasing tuition fees. Discuss the benefits and costs to society of abolishing all tuition fees. 5.Discuss three policies to reduce the level of cigarette smoking amongst under 21s. 6.Discuss the extent to which governments should subsidise companies who are developing cars which run on clean fuels such as hydrogen? 7.Discuss whether the government is mistaken to worry about monopoly power? 8.Discuss the advantages and disadvantages of the government intervening in agricultural markets? 9.Discuss the effects...
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...Information Goods What is Information? As a first step, we need to get a clearer definition of the topic. But what is this stuff, "information?" Before we can go very far, we need a definition of information goods and services, and that is a pretty controversial subject in itself. Here are some examples of the trade in information goods and services: 1. A newly invented machine is patented, and the patent is licensed to a company that plans to build and sell the machine. 2. A new edition of a best-selling travel guide is published. 3. A public library buys 3 copies of the travel guide to lend (free) to its patrons. 4. A financial advisor offers his clients advice and opinions about profitable investments in return for a commission on their investment transactions. 5. An investor consults a World-Wide Web page for the values of "leading economic indicators" (key economic statistics) supplied by the U. S. Commerce Department. There is no charge. 6. A collection of photographs of great paintings in world museums is put on CD-ROM and sold by a computer software company. 7. A record company publishes a boxed set of CD's with a digital recording of a recent performance of Mozart's "Marriage of Figaro," with Bryn Terfel singing the role of Figaro. The set includes the libretto of the opera. What these examples have in common is that information goods and services are being sold (or given away). For the purposes of our discussion, information goods and services share...
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...Individual Briefing Paper “The Impact Investing: a tool to mobilize Italian capitals in order to pursue a positive social impact” #2430 Social Entrepreneurship Individual Assignment Table of Contents Introduction ................................................................................. 3 1. The Problem ........................................................................... 3 1.1. Who Would Benefit And How? ............................................................. 4 1.2. The Threats .......................................................................................... 4 1.3. The Solution ......................................................................................... 5 1.4. Social Responsibility to Offset Lower Financial Returns......................... 5 2. The Topic: the Impact Investing ............................................... 6 3. Benchmarking ......................................................................... 6 4. Conclusions ............................................................................ 7 Sources ......................................................................................... 8 2 Social Entrepreneurship Individual Assignment Introduction The social offer is largely garrisoned by the State and, it involves sanitary sector, education, and services to the person and in general...
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...Lecture 3: Arguments against trade * The job argument * Trade with other countries destroys domestic jobs. Economists’ response: * Free trade creates jobs at the same time that it destroys them. * Workers move from the importing industries to those industries in which a country has a comparative advantage. * The transition may impose hardship on some workers initially; in the long term, the country as a whole can enjoy a higher standard of living. * The national security argument * A country should protect industries that are vital for national security. Economists’ response * Protecting key industries may be appropriate when there are legitimate concerns over national security. * However, producers may exaggerate their role in national defence in order to obtain protection from foreign competition at consumers’ expense. * The infant industry argument * New industries need temporary trade restrictions to help them get started. Economists’ response: * To apply protection successfully, the government would need to ‘pick winners’. * If an industry will be profitable in the future, the owners of the firms should be willing to incur temporary losses in order to obtain the eventual profits. * The unfair competition argument * If firms in different countries are subject to different laws and regulations, then it is unfair to expect the firms to compete in the international marketplace...
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...Chapter 8 Producer and Consumer Surplus consumer surplus — the value the consumer gets from buying a product less its price. producer surplus — the price the producer sells a product for less the cost of producing it. Burden of Taxation A tax paid by the supplier shifts the supply curve up by the amount of the tax. The loss of consumer and producer surplus from a tax is known as deadweight loss . Deadweight loss is shown graphically by the welfare loss triangle — a geometric representation of the welfare cost in terms of misallocated resources caused by a deviation from a supply/demand equilibrium. The cost of taxation includes the direct cost of revenue paid, lost surplus, and administrative cost. Interestingly, in terms of aesthetics, people have come to like the style of Paris roofs; it is one of the many things that makes Paris distinct. Including aesthetics complicates the analysis enormously. Economic reasoning is based on the architectural view that form follows function. Who Bears the Burden of a Tax? Taxes are like hot potatoes: Everyone wants to pass them on to someone else. Nobody wants to pay taxes, and there are usually large political fights about whom government should tax. For example, should the Social Security tax (mandated by the Federal Insurance Contributions Act, or FICA) be placed on workers or on the company that hires them? The supply/demand framework gives an unexpected answer to this question. Burden Depends on Relative Elasticity ...
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...Question 2: The Coase Theorem states that if property rights are well defined, and no significant transaction costs exist, an efficient allocation of resources will result even with externalities (Harris, 2002). Coase argued that market failure, can be privately solved to an optimal level when the legal system intervenes, giving property rights to one of the parties involved. Essentially, the theorem is based on two underlying assumptions which are low transaction costs and the assignment of property rights. Firstly, the assignment of property rights is the right to have the exclusive use of their property, including the right to buy and sell it (Hubbard et al, 2009). Initially, polluters pollute because they believe they have the right too although the third party affected believe they have the right to less pollution. Hence without property rights, an inefficient level of equilibrium will be produced until the point in which the market intervenes assigning property rights. Another vital assumption is low transaction costs, which are the costs in time and other resources that parties incur in the process of carrying out an exchange of goods and services (Hubbard et al, 2009). As transaction costs of negotiating, binding and monitoring the agreement are very expensive when many individuals are involved, the transaction costs can exceed the gains from the transaction itself. When these two assumptions are held, an optimal solution will be reached when the monetary damage of one...
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...is well known, over the last decade(s), sophisticated pricing policies in transport have evolved from a primarily academic, theoretical construct, to a realistic and seriously considered option for many areas – urban and non-urban – around the world. This is due to (at least) two simultaneous, interacting developments, viz. the steady growth in transport related problems such as congestion and emissions on the one hand, and the development of technologies enabling automated charging on the other. So, marginal cost pricing in transport is ‘hot’ in the sense that many governments, at different spatial levels, seriously explore the possibilities for implementing some form of pricing policies aimed at the containment of transport-induced externalities. At the same time, such proposals are rarely met by great public enthusiasm, making it a ‘hot’ topic from the political viewpoint in that policy makers might easily burn their hands when proposing to drastic pricing reforms in transport. A very common result is that proposals for pricing schemes often end up in the proverbial wastebasket long before a first penny was to be actually charged. Apparently, the implementation of marginal cost based pricing in transport is not as straightforward as it may seem after calculating the net social benefits that can be realized with it, in theory enabling the government to make everybody better of with the policy than without it. Transport analysts have acknowledged the implied paradox, and much...
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...J O I N T C E N T E R AEI-BROOKINGS JOINT CENTER FOR REGULATORY STUDIES The Antitrust Economics of Two-sided Markets David S. Evans Related Publication 02-13 September 2002 David Evans is Senior Vice President, NERA Economic Consulting. The author is extremely grateful to Howard Chang, George Priest, Jean-Charles Rochet, Richard Schmalensee, and Jean Tirole for many helpful comments and suggestions and Irina Danilkina, Anne Layne-Farrar, Daniel Garcia Swartz, Bryan Martin-Keating, Nese Nasif, and Bernard Reddy for their many contributions to the research upon which article is based. The author has worked for a number of companies in the two-sided markets discussed in this paper including Bloomberg, Microsoft, and Visa. © David S. Evans 2002. Abstract “Two-sided” markets have two different groups of customers that businesses have to get on board to succeed—there is a “chicken-and-egg” problem that needs to be solved. These industries range from dating clubs (men and women), to video game consoles (game developers and users), to credit cards (cardholders and merchants), and to operating system software (application developers and users). They include some of the most important industries in the economy. Two-sided firms behave in ways that seem surprising from the vantage point of traditional industries, but in ways that seem like plain common sense once one understands the business problems they must solve. Prices do not and prices cannot follow marginal costs...
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...Green Technology: A Cost Benefit Analysis of Business going Green Cost Benefit Analysis of Green Technology. I. Introduction Many business owners fear the costs associated with going green and although the net return varies according to the sector, in most cases these fears are unwarranted. Sustainable business practices should be evaluated based on a cost/benefit analysis. The benefits for things like brand reputation and employee loyalty, must be weighed against the costs and risks. When considering the value of sustainable practices businesses need to be notified of a wide range of benefits. Human resources are a good example of a department that benefits from greener practices. According to The Harvard Business Review’s summary of a number of green building studies, green facilities have been shown to increase the productivity of employees. Research further reveals that retailers who installed skylights saved energy and boosted sales by as much as 40 percent. Other research has indicated that loyalty and morale are positively impacted by a green workplace. Greening a physical environment contributes to health and reduces sick days. MonsterTRACK.com study revealed that people want to work for a company that is green. These factors enable green companies to attract and retain the best people, while saving human resources time and money. Green initiatives can save money, strengthen...
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