extnalty
DESCRIPTION
Externalities and social costTRANSCRIPT
![Page 1: Extnalty](https://reader036.vdocument.in/reader036/viewer/2022081413/546edcf0af795976298b58b9/html5/thumbnails/1.jpg)
Externalities
![Page 2: Extnalty](https://reader036.vdocument.in/reader036/viewer/2022081413/546edcf0af795976298b58b9/html5/thumbnails/2.jpg)
ExternalitiesExternalities
Externalities in production(a) external costs
Externalities in production(a) external costs
![Page 3: Extnalty](https://reader036.vdocument.in/reader036/viewer/2022081413/546edcf0af795976298b58b9/html5/thumbnails/3.jpg)
Q1O
MC = S
DP
Co
sts
and
be
nef
its
Quantity
External costs in productionExternal costs in production
![Page 4: Extnalty](https://reader036.vdocument.in/reader036/viewer/2022081413/546edcf0af795976298b58b9/html5/thumbnails/4.jpg)
O
MC = S
DP
MSC
Co
sts
and
be
nef
its
Quantity
External cost
Q1Q2
Social optimum
External costs in productionExternal costs in production
![Page 5: Extnalty](https://reader036.vdocument.in/reader036/viewer/2022081413/546edcf0af795976298b58b9/html5/thumbnails/5.jpg)
ExternalitiesExternalities
Externalities in production(b) external benefits
Externalities in production(b) external benefits
![Page 6: Extnalty](https://reader036.vdocument.in/reader036/viewer/2022081413/546edcf0af795976298b58b9/html5/thumbnails/6.jpg)
O
DP
MC = S
Q1
Co
sts
and
be
nef
its
Quantity
External benefits in productionExternal benefits in production
![Page 7: Extnalty](https://reader036.vdocument.in/reader036/viewer/2022081413/546edcf0af795976298b58b9/html5/thumbnails/7.jpg)
O
MSC
DP
Q1
External benefit
Co
sts
and
be
nef
its
Quantity
MC = S
Q2Social optimum
External benefits in productionExternal benefits in production
![Page 8: Extnalty](https://reader036.vdocument.in/reader036/viewer/2022081413/546edcf0af795976298b58b9/html5/thumbnails/8.jpg)
O
MC = S
DP
Q1Q2
Cos
ts a
nd b
enef
its (
£)
Quantity
MSC
External cost
(a ) External costs
O
DP
Q2Q1
Cos
ts a
nd b
enef
its (
£)
Quantity
MSCMC = S
External benefit
(b) External benefits
External costs and benefits in production
![Page 9: Extnalty](https://reader036.vdocument.in/reader036/viewer/2022081413/546edcf0af795976298b58b9/html5/thumbnails/9.jpg)
ExternalitiesExternalities
Externalities in consumption(a) external costs
Externalities in consumption(a) external costs
![Page 10: Extnalty](https://reader036.vdocument.in/reader036/viewer/2022081413/546edcf0af795976298b58b9/html5/thumbnails/10.jpg)
Q1
(MB)MU = D
O
DP
Co
sts
and
be
nef
its
Quantity
External costs in consumptionExternal costs in consumption
![Page 11: Extnalty](https://reader036.vdocument.in/reader036/viewer/2022081413/546edcf0af795976298b58b9/html5/thumbnails/11.jpg)
Q2
(MB)MU = D
O
DP
Co
sts
and
be
nef
its
Quantity
External cost
MSB
Q1
External costs in consumptionExternal costs in consumption
Social optimum
![Page 12: Extnalty](https://reader036.vdocument.in/reader036/viewer/2022081413/546edcf0af795976298b58b9/html5/thumbnails/12.jpg)
ExternalitiesExternalities
Externalities in consumption(b) external benefits
Externalities in consumption(b) external benefits
![Page 13: Extnalty](https://reader036.vdocument.in/reader036/viewer/2022081413/546edcf0af795976298b58b9/html5/thumbnails/13.jpg)
(MB)MU = D
O
DP
Q1
Co
sts
and
be
nef
its
Quantity
External benefits in consumptionExternal benefits in consumption
![Page 14: Extnalty](https://reader036.vdocument.in/reader036/viewer/2022081413/546edcf0af795976298b58b9/html5/thumbnails/14.jpg)
Q2
(MB)MU = D
O
DP
Q1
Co
sts
and
be
nef
its
Quantity
External benefit
MSB
External benefits in consumptionExternal benefits in consumption
Social optimum
![Page 15: Extnalty](https://reader036.vdocument.in/reader036/viewer/2022081413/546edcf0af795976298b58b9/html5/thumbnails/15.jpg)
O
MB
PP
Cos
ts a
nd b
enef
its (
£)
Car miles
MSB
External cost
O
MB
PP
Q1
Cos
ts a
nd b
enef
its (
£)
Rail miles
Q2
MSB
External benefit
(a ) External costs (b) External benefits
External costs and benefits in consumption
Q1Q2
![Page 16: Extnalty](https://reader036.vdocument.in/reader036/viewer/2022081413/546edcf0af795976298b58b9/html5/thumbnails/16.jpg)
ExternalitiesExternalities
Using taxes to correct for an externality(a) external cost in production
Using taxes to correct for an externality(a) external cost in production
![Page 17: Extnalty](https://reader036.vdocument.in/reader036/viewer/2022081413/546edcf0af795976298b58b9/html5/thumbnails/17.jpg)
Q1O
MC = S
DP
Co
sts
and
be
nef
its
Quantity
Using taxes to correct a market distortionUsing taxes to correct a market distortion
![Page 18: Extnalty](https://reader036.vdocument.in/reader036/viewer/2022081413/546edcf0af795976298b58b9/html5/thumbnails/18.jpg)
O
MC = S
DP
MSC
Co
sts
and
be
nef
its
Quantity
External cost
Q1Q2
Social optimum
Using taxes to correct a market distortionUsing taxes to correct a market distortion
![Page 19: Extnalty](https://reader036.vdocument.in/reader036/viewer/2022081413/546edcf0af795976298b58b9/html5/thumbnails/19.jpg)
Q2
MC
Q1O
DP
Co
sts
and
be
nef
its
Quantity
Optimum tax = MSC – MC
MC = SMSC
Using taxes to correct a market distortionUsing taxes to correct a market distortion
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Amount of tax
Q2
MC
Q1O
DP
Co
sts
and
be
nef
its
Quantity
MC = SMSC
Using taxes to correct a market distortionUsing taxes to correct a market distortion
![Page 21: Extnalty](https://reader036.vdocument.in/reader036/viewer/2022081413/546edcf0af795976298b58b9/html5/thumbnails/21.jpg)
ExternalitiesExternalities
Using subsidies to correct for an externality(a) external benefits in production
Using subsidies to correct for an externality(a) external benefits in production
![Page 22: Extnalty](https://reader036.vdocument.in/reader036/viewer/2022081413/546edcf0af795976298b58b9/html5/thumbnails/22.jpg)
O
DP
MC = S
Q1
Co
sts
and
be
nef
its
Quantity
Using subsidies to correct a market distortionUsing subsidies to correct a market distortion
![Page 23: Extnalty](https://reader036.vdocument.in/reader036/viewer/2022081413/546edcf0af795976298b58b9/html5/thumbnails/23.jpg)
O
MSC
DP
Q1
External benefit
Co
sts
and
be
nef
its
Quantity
MC = S
Q2Social optimum
Using subsidies to correct a market distortionUsing subsidies to correct a market distortion
![Page 24: Extnalty](https://reader036.vdocument.in/reader036/viewer/2022081413/546edcf0af795976298b58b9/html5/thumbnails/24.jpg)
MC
O
P
Q2Q1
Co
sts
and
be
nef
its
Quantity
Optimum subsidy
= MC – MSC
MSCMC = S
D
Using subsidies to correct a market distortionUsing subsidies to correct a market distortion
![Page 25: Extnalty](https://reader036.vdocument.in/reader036/viewer/2022081413/546edcf0af795976298b58b9/html5/thumbnails/25.jpg)
Amount ofsubsidy
MC
O
P
Q2Q1
Co
sts
and
be
nef
its
Quantity
MSCMC = S
D
Using subsidies to correct a market distortionUsing subsidies to correct a market distortion