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58 Cards in this Set
- Front
- Back
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who dictates what is produced in a market economy?
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the consumers, who have "sovereignity"
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collective good
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(public good) a good or service that can be used by many at the same time without diminishing any one person's consuption; it is difficult to exclude anyone from using this good
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example of collective good
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fireworks
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what's the problem with collective goods?
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people want to consume them but not pay for them
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when is a product or service supplied by the government?
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if the good or service is considered of sufficient importance to society to justify its production, but cannot be sold for a price that covers its production and distribution costs
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how does the govt pay for collective goods?
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by fees for service and by tax money
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example of collective good
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national defense, public safety, a clean enviornemnt, and scientific advances
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when congestion sets in, a highway or a toll bridge can no longer be considered a..
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collective good
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what is one decision necessary to be made regarding collective goods?
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determining how much of the good to produce
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why do many economists believe that goods and services should be privatized?
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because government provision can be inefficient without any competition, requiring the govt to provide quality output at a low cost
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privatization
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allowing the private sector to produce goods and services that once were provided by the govt
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external economies
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benefits that accrue to parties other than the producer and the purchaser of the good or service; benefits for which payment is not collected
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example of a good that has external economies
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a telephone, for which one person pays for, but many people benefit by calling that person
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what is a reason for governments to provide goods and services, evien if they could be provided by the private sector?
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the existence of external economies
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what happens when goods that have external economies are left open to privatization?
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less than the optimal amount is produced because others can also benefit by the good
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what is the justification for the govt to pay for education?
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external economies: a more literate population, which can operate its industries efficiently and provide professional services to people; public would not be able to participate in the political process effectively if there were no education
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more examples of goods that have external economies
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public health services (immunizations), medical research, consumer infomration, city transity systems
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merit goods
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goods (including services) that have a social value over and above their utilitiy for the individual consumer
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externalities
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external economies or external diseconomies (external costs)
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examples of merit goods
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libraries, museums, and zoos
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what do merit goods do?
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they enrich our entire culture, not just individuals, and they are so important that everyone merits access to them
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why does the govt provide the services for free or less than full cost?
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because the social values of such services is greater than the price buyers will pay
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why are collective goods provided?
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to meet the goal of greater equity; public transit, for example, is made available to lower-income groups
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what is their an argument over when it comes to the govt providing collective goods?
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whether they should provide income supplements (direct) or public services
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when arguing over income supplements v. public services, what is the criteria?
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whether one option would result in more pollution, greater traffic and parking congestion, and more vehicle accidents
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the con for direct income supplements
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the money can be used for unnecessary goods, for which the public is unwilling to pay tax dollars
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what has been proposed as an answer to how to approach collective good distribution?
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cost-benefti analyses to balance total costs against total benefits; by balancing estimated benefits against estimated costs, an outcome similar to individual decision making in the market might result
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why are cost-benefit analyses for collective goods ineffective?
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such analyses require externalities and equity considerations
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what is a good reason for govt involvement in the economy
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pollution
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when did the EPA form?
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in 1970
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why does the market system fail?
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because it fails ot achieve the socioeconomic goal of a clean environment
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why does the market system fail?
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because producers and consumers in some circumstances do not pay the full cost of what they use, including environmental costs
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external costs
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costs of the production process that are not borne by the producer or by the purchaser of the product and are therefore not taken into consideration in production and consumption decisions
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examples of external costs
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motorists do not have to include the cost of running their cars the health and environmental damage resulting from auto exhaust emissions
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when do external costs arise?
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when teh environment is treated as a free good
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an example of how businesses take adv of free goods
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no one individual can claim rights to the air and water
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what must be done to prevent bizs taking adv of free goods?
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society must take action trhough the govt to claim rights; producers and buyers must be reqd to internalize the external costs by requiring them to shoulder the full costs of production
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what are some of the solutions that the govt implements to stop bizs from taking adv of "free goods" with harm done to the environment
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smoke scrubbers on smoke stacks are reqd; for auto exhaust pollution, installation and proper maintenance of exhaus emission control devices, and the use of lead-free gas are reqd
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by shifting some of the costs of production to third prtys, bizs...
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lower their costs and prices and increase their output
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what happens with the existence of external costs?
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too much of a good is produced and used for too low a price
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what are the costs of a clean environment?
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forcing firms to internalize their externalities, thus highering costs and prices and lowering the supply of output
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what are the trade-offs involved in the control of pollution?
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the opp costs of reducing pollution include producing and buying less steel, paying more for cars, getting lower gas mileage, and flying at less convenient hours, and even losing jobs in high-pollution industries; hwvr, those jobs lost in high-pollution industries will be replaced by those involved in env regulation and our nation's health care costs will be reduced
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how much does the US spend on env protection compared to other expenditures?
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the US spends only 1.7% of its total outcome on pollution reduction compared to 4.2% spent on shoes and clothing
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how does the cost of env protection compare in other countries opposed to the US?
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less-developed countries have to give up more for pollution control; many of these countries forego pollution control because it's too expensive
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what is an example of command-and-control regulations and why are they criticized?
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command-and-control regulations are, for example, reducing carbon monoxide emissions to a set level; they are criticized, because they do not reduce pollution in an economically efficient manner
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why was the Clean Air Act passed?
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to improve economic efficiency along with env protection
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what does the Clean Air Act (1990) permit?
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the sale of emission allowanes, which are granted to plants faced with heavy pollution-control costs
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what does the Clean Air Act allow the govt to do?
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it allows the govt to set a level of TOTAL allowable sulfur dioxide emissions and to provide "emission permits" that allow the holder of the permit to emit a specified amount of sulfur dioxide
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how are permits distributed through the Clean Air Act?
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they're sold by market-determined prices to firms
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what is the point of marketable pollution permits?
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they encourage firms that find emission control less costly than buying the permits to clean up
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command-and-control regulation
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a system of administrative or statuory rules that requires teh meeting of certain standards of performance
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how do some people benefit the env within the permit system?
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they buy permits and then destroy them
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eco-tax
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a fee levied by the government on each unit of environmental pollutant emitted
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what is another way to force an internalization of external env costs?
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to impose an emission charge on firms for the env damage they do; the electric utility industry, for example, might by taxed $250 per ton for spewing pollutants into the air
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if the government decides thast pollution levels are too high, it can simply...
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raise the tax and more firms will elect to reduce their emissions
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what is the end result of eco-taxes?
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the firms that can reduce their emissions at low cost od so; whatever pollution that remains comes from sources where it is most expensive to reduce it
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no solution to environmental pollution seeks to..
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remove pollution altogether
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what does economic theory suggest in relation to pollution?
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the worst and most dangerous pollution should be cleaned up first; successive reductions should continue so long as the benefits of removing the pollutants exceed the cost of removing them
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