Economics

4. What are externalities, and how do they typically affect the price of a good or service?

Situations where self interest and public interest work against each other are known as “commons problems.” In the market model the chief source of conflict is individual’s perceived welfare vs. another’s perceived welfare. In the polis model the chief source of conflict is self interest vs. public interest, or “how to have both private benefits and collective benefits.” Stone notes “most actions in the market model do not have social consequences” but in the polis, commons problems “are everything.” It is rare in the polis that the costs and benefits of an action are entirely self-contained, affect only one or two individuals, or are limited to direct and immediate effects. Actions in the polis have unanticipated consequences, side effects, long-term effects, and effect many people. Stone states, “one major dilemma in the polis is how to get people to give weight to these broader consequences in their private calculus of choices, especially in an era when the dominant culture celebrates private consumption and personal gain.” That is a

Negative externalities are costs imposed upon an individual or group that is outside or external to a transaction.

Pollution has become a heated issue in recent years. The destruction of the environment along with serious health problems are the eventual effects. The extensive use and availability of automobiles, tremendous amounts of production in the booming economy and the constant increase in demand for energy, can be held responsible.

A ____________ externality exists when third parties are benefited by a transaction that they did not directly undertake.

Market failure is a failure when markets yield an inefficient output of resources leading to negative impacts on the society, nonrivalrousness in consumption and nonexclusiveness in use. Eg: the monopoly is an abuse of market power causing stagnation and idleness.

Externality can be either positive or negative. If one is building a plant to extract oil from the ground, the positive externality is the added jobs for the community. However, the potential pollution from the plant could be conceived as negative. The externality affect is when one does not control the impact from another person or companies decision. Another positive externality is the improvement of a workforce in an organization that employs local labor. Pollution is widely viewed as the top negative externality.

1. (10 pts.) Stella Ann Freeman is having a difficult time deciding whether or not to purchase a new car. How would understanding the concept of opportunity costs help her make a decision?

3. Pollution is considered by most a negative externality. Some economists would like to see the costs of these burdens incorporated into the price of goods that we buy. For instance, since coal fire power plants increase emissions that could potentially lead to climate change, these economists believe that the price we pay for electricity is not adequately high enough. Draw a completely labeled graph and illustrate on the graph how much higher electricity prices would be if the full costs of electricity production were taken into account. You do not need to provide actual numbers; rather, show on the

In the diagram above, we have a normal downward sloping demand curve and two upward sloping supply curves. The lower one, the marginal private cost, represents the car firm's supply curve (remember that the firm's supply curve is also its marginal cost curve). The other one, the marginal social cost, represents the true supply curve (and, therefore, the true marginal cost of production) for society as a whole, allowing for the external cost of production. This external cost is represented by the vertical distance between the two supply curves (AB).

Government intervention corrects market failure resulting in environmental sustainability and improved accessibility to services. Goods or services with negative externalities are market failures because the operation of the price mechanism

Negative externalities are detrimental third-party effects caused by the production and/or consumption of a good. A public good is a good provided free of charge to the consumer, by the government. A public good is non-excludable and non-rivalrous. A merit good is a good that gives positive externalities upon production and/or consumption. A merit good is non-excludable, yet rivalrous.

This assignment has a maximum total of 100 marks and is worth 10% of your total grade for this course. You should complete it after completing your course work for Units 1 through 5. Answer each question clearly and concisely.

(C) Externalities -- Companies produce some type of external cost that affects the community. The company would not voluntarily reduce or

There are also solutions to a positive externality. That is to get the decision maker to internalize the external effect. The difference with this and the negative externality is that with the negative externality they would have to try to get the decision maker to see higher costs and with the positive externality the government needs to somehow make the decision more appealing to the private decision-maker.