Failures(M-Grow-Hill,微观经济学,王秋石)

15 - 10
Negative Externalities
When negative externalities ensue third parties are hurt.
Marginal social cost is greater than marginal private cost.
McGraw-Hill/Irwin
Failures(M-Grow-Hill,微观经济学,王 秋石)
McGraw-Hill/Irwin
Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved.
15 - 2
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Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved.
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15 - 13
The Effect of a Negative Externality
Cost
P1 P0
0
Marginal social cost
Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved.
15 - 11
Negative Externalities
Marginal social cost includes all the marginal costs borne by society.
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Alternative Methods of Dealing with Externalities
Externalities can be dealt with via direct regulation, incentive policies, and voluntary solutions.
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Tax Incentive Policies
A tax incentive program uses a tax to create incentives for individuals to structure their activities in a way that is consistent with the desired ends.
The two types of incentive policies are either taxes or market incentives.
McGraw-Hill/Irwin
Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved.
McGraw-Hill/Irwin
Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved.
15 - 15
A Positive Externality
Cost P1 P0
0
McGraw-Hill/Irwin
S = Marginal private and social cost
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Positive Externalities
Private trades can benefit third parties not involved in the trade.
Marginal social benefit equals the marginal private benefit of consuming a good or service plus the positive externalities resulting from consuming that good or service.
D1 = Marginal social benefit Marginal benefit of an externality
D0 = Marginal private benefit
Q0 Q1
Quantity
Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved.
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Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved.
15 - 7
Externalities
Externalities are the effect of a decision on a third party that is not taken into account by the decisionmaker.
Externalities can be both positive and negative.
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Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved.
15 - 8
Externalities
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Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved.
15 - 6
Market Failures
Because the politics of implementing the solution often leads to further problems, government intervention may not necessarily improve the situation.
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Market Failures
A market failure occurs when the invisible hand pushes in such a way that individual decisions do not lead to socially desirable outcomes.
Examples include second-hand smoke, water pollution, and congestion.
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Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved.
15 - 12
Negative Externalities
Marginal social cost is calculated by adding the negative externalities associated with production to the marginal private costs of that production.
Examples include innovation, education, and new business formation.
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Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved.
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Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved.
15 - 5
Market Failures
Any time a market failure exists, there is a reason for possible government intervention into markets to improve the outcome.
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15 - 19
Direct Regulation
Direct regulation is inefficient because it achieves a goal in a more costly manner than necessary.
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Direct Regulation
A program of direct regulation is where the amount of a good people are allowed to use is directly limited by the government.
Marginal private cost
Marginal cost from externality
Q1 Q0
Marginal social benefit
Quantity
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Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved.
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Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved.
15 - 20
Incentive Policies
Incentive programs are more efficient than direct regulatory policies.
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Externalities
Positive externalities occur when the effect of a decision on others that is not taken into account by the decisionmaker is beneficial to others.
Negative externalities occur when the effect of a decision on others that is not taken into account by the decisionmaker is detrimental to the third party.
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Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved.
15 - 18
Direct Regulation
Economists do not like this solution since it does not achieve the desired end as efficiently (at the lowest cost possible in total resources without consideration as to who pays those costs) and fairly as possible.