Assignment 3-2 Externality - Pigou

docx

School

Arizona State University *

*We aren’t endorsed by this school

Course

445

Subject

Economics

Date

Feb 20, 2024

Type

docx

Pages

Uploaded by mtttt3

ASSIGNMENT EXTERNALITY – PIGOU What is market failure? What is an externality? Explain the distinction between private cost and social cost, and private benefit and social benefit. What is a pecuniary externality? How does it differ from a real (technological) externality? Give an example of pecuniary externality. Give an example of a real (technological) externality? 1

Is not wearing a mask when going into a store, and not social distancing, an example of a pecuniary externality or a real externality? Could an externality be beneficial? Give an example of a beneficial real externality? What is a reciprocal externality? Give an example. When figuring out how a negative externality affects a firm’s supply curve, is it the firm’s average variable cost curve or its marginal cost curve that matters? Why? 2

What length in this diagram measures the marginal external cost when production is Q’? Where pollution emitted by firm A raises firm B’s marginal cost of production, what is the rule for the socially optimal level of firm A’s output? In the following diagram, label the cost curves appropriately and draw in the level of firm A’s output that would be socially optimal. 3

Your preview ends here

Eager to read complete document? Join bartleby learn and gain access to the full version

Access to all documents
Unlimited textbook solutions
24/7 expert homework help

Is this the level of output that firm A would choose if it were unregulated and left to its own devices? What area indicates the profit made by the firm if it chooses to produce Q c ? In the above diagram, what area indicates the social net benefit if the firm chooses to produce Q c ? 4

What area indicates the profit made by the firm if it chooses to produce Q o ? In the above diagram, what area indicates the social net benefit if the firm chooses to produce Q o ? In the diagram below, what area indicates the increase in social net benefit if the firm produces Q o instead of Q c ? 5

Is any damage caused to firm B when polluting firm A produces its socially optimal output? If so, how much? Identify the area in the diagram? Is it socially optimal for that level of damage to occur? How would the diagram have to be different for it to be socially optimal that no damage at all be caused to firm B? And, what would the socially optimal level of firm A’s output be in that case? How had governments dealt with negative externalities prior to Pigou? How had courts deal with negative externalities prior to Pigou? 6

Your preview ends here

Eager to read complete document? Join bartleby learn and gain access to the full version

Access to all documents
Unlimited textbook solutions
24/7 expert homework help

Pigou proposed a solution involving a tax on firm A’s production in order to induce firm A to freely select the socially optimal level. How was the amount of Pigou’s tax to be calculated? Illustrate the tax in the diagram below When it is socially optimal to have zero externality, does Pigou’s tax formula still apply? Whatever, the social optimum might be, who would impose Pigou’s tax? What information would a government require to implement Pigou’s tax correctly? 7

Does it matter if a government lacks some of the information needed to implement Pigou’s tax correctly? Does it affect the optimality of the outcome generated when a somewhat incorrect tax is imposed? Is there any connection between the ability to perform non-market valuation (using the travel cost method or another method to be covered later in the course) and the ability to set a Pigouvian tax correctly? Could it happen that the marginal external cost varies with different levels of the polluting firm’s output? If so, would that affect the calculation of the correct Pigouvian tax? What does it mean to internalize an externality? Why would this tax solve the market failure associated with a negative externality? Does it matter that a Pigouvian tax is a license to pollute? What was Pigou’s novel solution for dealing with a beneficial (positive) externality? 8

How was the amount of Pigou’s subsidy to be calculated? In the case of a beneficial externality, what information would a government require to implement Pigou’s subsidy correctly? How did Pigou’s analysis line up with regard to Pareto efficiency? What did Pigou specify should be done with the tax revenue generated by his tax scheme? Why was Pigou not so concerned about how the revenue brought in by a Pigouvian tax should be spent? What role did consideration of the equity/inequity involved in a negative externality play in Pigou’s analysis? Why did Pigou think (in 1920) that new mothers should receive paid maternity leave if they were employed before their baby was born? 9

Your preview ends here

Eager to read complete document? Join bartleby learn and gain access to the full version

Access to all documents
Unlimited textbook solutions
24/7 expert homework help

Related Documents

Screenshot 2024-01-01 at 8.36.18 PM.png

MGMW HW Set #2.pdf

4.17.PNG

18W (1).pdf

ECO 202 Project Template.docx

SUST 3200 Reading Review.docx

ASSIGNMENT 3-28 Pollution policy -- more (1).docx

Assignment 10-13 Public goods (1).docx

ASSIGNMENT 4-20 Economics of forests.docx

MAT 240 Project Two Template EDITED.docx

Online Quiz 2-10.pdf

M01 Journal Best Estate Plan.docx

Recommended textbooks for you

Essentials of Economics (MindTap Course List)

Economics

ISBN:9781337091992

Author:N. Gregory Mankiw

Publisher:Cengage Learning

Principles of Economics (MindTap Course List)

Economics

ISBN:9781305585126

Author:N. Gregory Mankiw

Publisher:Cengage Learning

Principles of Microeconomics (MindTap Course List)

Economics

ISBN:9781305971493

Author:N. Gregory Mankiw

Publisher:Cengage Learning

Principles of Economics, 7th Edition (MindTap Cou...

Economics

ISBN:9781285165875

Author:N. Gregory Mankiw

Publisher:Cengage Learning

Principles of Microeconomics

Economics

ISBN:9781305156050

Author:N. Gregory Mankiw

Publisher:Cengage Learning

ECON MICRO

Economics

ISBN:9781337000536

Author:William A. McEachern

Publisher:Cengage Learning

SEE MORE TEXTBOOKS

Recommended textbooks for you

Essentials of Economics (MindTap Course List)
Economics
ISBN:9781337091992
Author:N. Gregory Mankiw
Publisher:Cengage Learning
Principles of Economics (MindTap Course List)
Economics
ISBN:9781305585126
Author:N. Gregory Mankiw
Publisher:Cengage Learning
Principles of Microeconomics (MindTap Course List)
Economics
ISBN:9781305971493
Author:N. Gregory Mankiw
Publisher:Cengage Learning
Principles of Economics, 7th Edition (MindTap Cou...
Economics
ISBN:9781285165875
Author:N. Gregory Mankiw
Publisher:Cengage Learning
Principles of Microeconomics
Economics
ISBN:9781305156050
Author:N. Gregory Mankiw
Publisher:Cengage Learning
ECON MICRO
Economics
ISBN:9781337000536
Author:William A. McEachern
Publisher:Cengage Learning