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What is Social marginal costs?
Socail marginal costs are the full costs of production/consumption.
SMC = PMC + EC
SOCIAL MARGINAL COSTS= PRIVATE MARGINAL COSTS + EXTERNAL COSTS
What is deadweight/welfare loss?
Deadeweight/welfare loss is the combined loss of the consumer and the producer surplus.
How do you correct negative externalities?
- TAX - increasing the cost of production, if we tax just enough to shift the supply curve from the PMC to SMC(Socially desirable) the externality will go.
- Quotas - Is a physical limit of how much can be produced(intervention approach)
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