1. Marginal external cost is the cost of producing an additional unit of a good or service that falls on people other than producer. It is the amount of air, water, or noise pollution resulting from producing additional unit of a good or service.
2. A private cost is a cost borne by the producer. It is the cost of producing the good or service like material, labor, equipment. External cost is borne usually by other people than the producer. It is the cost of negative impact the production has on community. Example of this cost is a pollution. Social cost is the sum of private and external cost. It shows the entire cost of the production.
3. External cost is paid by the society, not the producer.
4. The supply curve will be the same as marginal …show more content…
If only private cost is considered than equilibrium is at the point where marginal social benefit = marginal private cost. This equilibrium has higher quantity produced and lower price than if external cost is also considered. When external cost is added the equilibrium is where marginal social benefit = marginal social cost. The equilibrium price is higher and the quantity is smaller.
6. Property rights are legally established titles to the ownership, use, and disposal of factors of production and goods and services that are enforceable by the law. They are helpful while trying to transfer some of the external cost from society onto producer.
7. The Coase theorem is the proposition that if property rights exist and the transaction cost of enforcing them are low, then private transaction are efficient and it doesn’t matter who has the property rights (factories must pay fee to residents in polluted area). For the Coase theorem to work the transaction fees must be low.
8.
a. Property rights. If the producer pollutes its own property, the rent from the property will decrease with increased pollution. If someone else owns the property, the fee paid to the owner will increase with increasing pollution. In both of these situations the external cost is transferred to …show more content…
Cap is an upper limit. It is the amount of pollution firm can produce. Firms are given permit from the government and they are allowed to trade them in the market for pollution permits. Firms with high abatement cost buy permits so they don’t have to make big cuts in pollution. In the example firm A would sell its permits to firm B.
10. Tragedy of the commons is the overuse of common resources if the user has no interest in preserving them.
11. Individual transferable quotas are a production limits given to individuals who can use them or trade them in ITQ market.
12. Education is positive externality. Positive externality has private benefit which is a benefit to the student, but they also have external benefit which is the benefit to society. Even people without children benefit from education.
13. Private subsidy is a payment from government to private producer. Private subsidy will increase the amount of product or service produced. It is not the most efficient method in increasing the efficient allocation of resources because the resources are allocated by bureaucrats and they try to maximize their budget. Other problem is that the organization sometimes spends some of the subsidy lobbying for more
2. A private cost is a cost borne by the producer. It is the cost of producing the good or service like material, labor, equipment. External cost is borne usually by other people than the producer. It is the cost of negative impact the production has on community. Example of this cost is a pollution. Social cost is the sum of private and external cost. It shows the entire cost of the production.
3. External cost is paid by the society, not the producer.
4. The supply curve will be the same as marginal …show more content…
If only private cost is considered than equilibrium is at the point where marginal social benefit = marginal private cost. This equilibrium has higher quantity produced and lower price than if external cost is also considered. When external cost is added the equilibrium is where marginal social benefit = marginal social cost. The equilibrium price is higher and the quantity is smaller.
6. Property rights are legally established titles to the ownership, use, and disposal of factors of production and goods and services that are enforceable by the law. They are helpful while trying to transfer some of the external cost from society onto producer.
7. The Coase theorem is the proposition that if property rights exist and the transaction cost of enforcing them are low, then private transaction are efficient and it doesn’t matter who has the property rights (factories must pay fee to residents in polluted area). For the Coase theorem to work the transaction fees must be low.
8.
a. Property rights. If the producer pollutes its own property, the rent from the property will decrease with increased pollution. If someone else owns the property, the fee paid to the owner will increase with increasing pollution. In both of these situations the external cost is transferred to …show more content…
Cap is an upper limit. It is the amount of pollution firm can produce. Firms are given permit from the government and they are allowed to trade them in the market for pollution permits. Firms with high abatement cost buy permits so they don’t have to make big cuts in pollution. In the example firm A would sell its permits to firm B.
10. Tragedy of the commons is the overuse of common resources if the user has no interest in preserving them.
11. Individual transferable quotas are a production limits given to individuals who can use them or trade them in ITQ market.
12. Education is positive externality. Positive externality has private benefit which is a benefit to the student, but they also have external benefit which is the benefit to society. Even people without children benefit from education.
13. Private subsidy is a payment from government to private producer. Private subsidy will increase the amount of product or service produced. It is not the most efficient method in increasing the efficient allocation of resources because the resources are allocated by bureaucrats and they try to maximize their budget. Other problem is that the organization sometimes spends some of the subsidy lobbying for more