Externalities and Public Goods

Private cost is the expenses a business incurs while producing a good or the price paid by an individual in purchasing a good. For example, consider a …

Externalities are outcomes of economic activities that affect third parties who are not directly involved in it. These impacts can be either positive or …

Private costs and benefits are the financial impacts on individuals or businesses directly involved in a transaction. However, when an additional unit of …

Producing goods often results in pollution as a byproduct, but eliminating all pollution isn't practical. Doing so would mean halting the production …

A negative externality is a cost suffered by an unrelated third party due to an economic transaction. The costs created by negative externalities are not …

In an imaginary town, Greendale, residents carelessly dispose of recyclable plastics due to minimal additional trash pickup fees, leading to recyclable …

Positive externalities occur when a third party benefits from an economic transaction without being directly involved. Take vaccines as an example. When …

In the town of Greendale, tackling the recyclable plastic waste issue with price or quantity mechanisms, such as a disposal fee, quota, or disposable …

Price-modification policies can correct externalities. One such policy is Pigovian taxes, named after economist Arthur Pigou. Pigovian taxes are designed …

In situations where positive externalities exist, governments often employ Pigouvian subsidies to adjust market prices. Pigouvian subsidies are financial …

Quantity-based interventions aim to address externalities by directly controlling the amount of a good or activity. Quotas are a prime example of this …

Pollution can be reduced using two main strategies: a quota on emissions or a tax on emissions. But which one is better? Take the steel industry. A quota …

Governments frequently struggle to accurately estimate each firm's pollution reduction costs and set appropriate quotas or taxes. Tradable permits …

The Coase Theorem states that costless negotiation among market participants will lead to an efficient market outcome regardless of who holds legal …

Private goods are items that a person can buy and use, which then prevents others from using them. For example, a slice of pizza. It is a private good …

Club goods are products that are excludable but non-rivalrous. This means that access to these goods can be restricted to certain people, but one …

Public goods are mainly provided by the government because they benefit everyone and cannot be limited only to those who pay for them. Private companies …

In finding the optimal level of public goods, consider national defense as an example. Suppose a nation has two individuals, John and Jane. The graph …

The free rider problem occurs when some people benefit from resources or services without paying for them. This issue arises because public goods are …

The tragedy of the commons happens when individuals use a shared resource selfishly, harming everyone's interest, including their own. Consider a …

Property rights refer to the legal control individuals or entities have over resources. It includes the right to use, sell, or lease these resources. When …