...Jason Alves May 4, 2015 Economics 102 Externalities In our economy, the government is always trying to improve the allocation of resources; one of the methods that improve the allocation of resources in our economy is the alteration of market failures that are caused by externalities. Externalities occur when an external source receives some of the costs of benefits of a certain good that the actual buyer or seller does not receive. There are two sides to externalities; there are both negative and positive externalities. First of all, a negative externality occurs when a decision made from a source (Individual or firm) does not have to pay the full amount of their decision. When talking about a good or a service that has a negative externality, the consumer is usually paying less than society. When a consumer makes a decision, typically they weight their marginal cost and benefit, but they do not weight the negative externality, which creates a huge disorganized market. As for the producer, they do not take the responsibility of external costs, so these costs are passed on to society. In addition, negative externalities occur everyday, from our jobs, homes and even children. In an article from BBC news, it explains the negative externalities that England received from smoke-free legislatures introduced. In the article it stated, “A study showed a 12% drop in the first year after the law to stop smoking in enclosed public places came into force. The authors say there...
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...the data and your own economic knowledge, evaluate the economic case for and against governments attempting to influence how mobile phones are manufactured and used. (25) The government should intervene in the mobile phone market to correct market failure due to the presence of negative externalities. 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. The negative externalities of mobile phone production stem from the production and consumption of the service broadcasting masts provide. The demand for broadcasting masts is derived from the demand for mobile phones. Broadcasting masts are said to cause negative externalities in the form of health-issues, such as cancer (Extract F, line 7). Negative health effects are a drain on government resources as healthcare is provided as a public good by the government, in the form of the NHS. An increase in cases of ill-health will cause an increase in the demand for the NHS, costing the government and tax payers money which is finite and must be put to its best use. As the demand for mobile phones is highly inelastic (Extract E, Line 9), the demand for broadcasting masts is unlikely to decrease if the...
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...recently imposed a ban on smoking in public areas, including restaurants and bars. Discuss whether an outright ban is necessarily superior to either a Pigovian or Coasian solution to the externalities created by smoking in public places. Introduction Partial smoking bans have become increasingly popular in Western democracies in recent years and tend to revolve around the banning of smoking in public areas. This essay will explore economic arguments and solutions relating to the externalities caused by smoking. The central problem at the heart of this issue is the over-consumption of cigarettes and the problem that the externalities of smoking cause for the general public and therefore this essay will show that efforts to curb total level of cigarette consumption can be approached from a variety of different perspective (see graph below). The essay will begin by discussing the economics of externalities before moving on to examine Pigovian and Coasian theoretical frameworks. The final section of the essay will apply these frameworks and will show that on balance a Pigovian tax in conjunction with a partial ban is the socially optimum solution. For the purposes of this essay an outright ban will refer to a total ban of cigarette consumption in society. [pic] Fig. 1 – Negative Consumption Externalities (Tutor2u, 2013). The economics of externalities The notion of externalities is not straightforward to define and Vanhove argues that externalities is one of the “vaguest and most...
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...Assignment 2: Externalities Patrick Sampson Professor Castorina ECON 405-Econ Problems and Issues 2/21/2015 Assignment 2: Externalities Externalities are everywhere. One might ask, what exactly is an externality? An externality is an operation that is acquired by other people unintentionally that can be beneficial or negative, but does not affect the person(s) who initiated the operation or service (Sharp, Register, & Grimes, 2013). With a positive externality, bystanders are able to use benefits; rather it is through consumption or production that does not involve a cost. According to Economics Online, when one experiences a positive externality, it is an incremental benefit that is perceived by society that causes a shift on the demand curve to the right and has a net welfare loss ("Positive Externalities," 2015). When nonparticipants experience a negative externality, that party will have a cost-effect associated with the good or service received. This paper will review three externalities (positive or negative), determine why the externality exists and provide a solution that will make these externalities less severe if applicable, and analyze the different stakeholders would be involved and their involvement with the externalities. To begin, the three externalities that will be reviewed will be education, pollution, and freelance musicians. When people seek a higher education, it benefits everyone which would be a positive externality. When people are educated...
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...Assignment 2: Externalities ECO 405 Prof Bergan August 11, 2013 An externality is something that, while it does not monetarily affect the producer of a good, does influence the standard of living of society as a whole (Kelly, Krugman, & Robin, 2008 ).There are two types of externalities positive and negative both play important roles in our everyday living. When there is a cost of externality than that is considered negative and when there is a benefit of an externality it is considered a positive externality. Positive externality is defined as benefits that accrue to third parties not involved in an economic activity. These benefits can be passed on due to either the consumption or production of a commodity by society (Kelly, Krugman, & Robin, 2008 ). Negative externalities are costs that third parties have to bear when a good is consumed or produced. Environmental cleanup can be considered as positive externalities. When the environment is clean we all benefit as a society but do not increase profits for the company responsible for it. Likewise, research and new technological developments create gains on which the company responsible for them cannot fully capitalize. Another positive externality is education when people are getting a better education this is a benefit for the country as a whole as more foreign direct investments will flow into the country. This will definitely increase employment and income for people who can’t find a job. Immunizations, such...
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...what are externalities? Externalities are common in virtually every area of economic activity. They are defined as third party (or spill-over) effects arising from the production and/or consumption of goods and services for which no appropriate compensation is paid. Externalities can cause market failure if the price mechanism does not take into account the fullsocial costs and social benefits of production and consumption. The study of externalities by economists has become extensive in recent years - not least because of concerns about the link between the economy and the environment. PRIVATE AND SOCIAL COSTS Externalities create a divergence between the private and social costs of production. Social cost includes all the costs of production of the output of a particular good or service. We include the third party (external) costs arising, for example, from pollution of the atmosphere. SOCIAL COST = PRIVATE COST + EXTERNALITY For example: - a chemical factory emits wastage as a by-product into nearby rivers and into the atmosphere. This creates negative externalities which impose higher social costs on other firms and consumers. e.g. clean up costs and health costs. Another example of higher social costs comes from the problems caused by traffic congestion in towns, cities and on major roads and motor ways. It is important to note though that the manufacture, purchase and use of private cars can also generate external benefits to society. This why cost-benefit analysis...
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...ECONOMICS FOR BUSINESS AND MANAGEMENT BC115008S SID: 1118562 Q1:”People of the same trade seldom meet together even for merriment and diversion, but the conversation ends in a conspiracy against the public or in some contrivance to raise prices” (Adam Smith, 1776, Book 10, Ch. VIII). Often, as Adam Smith noted above, the marketplace is influenced by the growth of monopolies, mergers, and cartel-type activities which often use their market power to the disadvantage of consumers. a) Examine the arguments in favour of a free-market system of resource allocation b) Explain how market failure can occur and suggest how the government in a country of your choice has sought to correct those market failures. 1.0 FREE MARKET SYSTEM ‘’If you leave the Market going alone, it will balance as there was an invisible hand’’ (Smith,1776). Free markets have many virtues. Arguably, the most recognized is the expansion of individual choice, and thus freedom, through mutually beneficial exchange. (Bauer, 2002, p.171) 1.1 Basis of the free Market: According to Adam Smith ,the free market system was based in: Free enterprise or ‘’Laisser faire’’, individualist, risk, capitalism. * Free enterprise (Laisser faire): The government does not run anything. * Individualist: Only individual matter, not community, not society. * Risk: Everyone can make a lot or can loose a lot. Everyone take his owns risks. * Capitalism: where the main thing is to make profit...
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...is assigned to the poor community, it will accept location of toxic waste dump and other polluting facilities out of desperate need for compensatory funds. c) In the preservation of open spaces, wealthy communities can buy the spaces but poor communities can’t. d) All of the above 4) Which of the following is an example of external benefit? a) Pollution from a manufacturing plant b) Public health policies mandating vaccinations c) Higher education d) Public health policies mandating vaccinations and higher education 5. Below is a Production Possibilities Frontier (PPC) for an economy. Which event would lead to the shift in the PPC curve from PPC0 to PPC1, (A) external benefits __ or (B) external cost __. [pic] 6. Since World War II, economic growth has been phenomenal and population has grown by leaps and bounds. Which of these is not a demand that population increase has placed on society? a) Improved living standard b) Energy issues c) Capacity of the environment to sustain the level of output d) Externalities on public goods 7. An externality is- a. The costs that parties incur...
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...Negative Externality… Negative Externality… Whenever there are side effects caused by the private action that can have an impact on other people in crucial ways, we have the problem known as, externalities. The problem arises when it’s a negative consumption and/ or production externalities because there is no such market for them e.g.; noise, air or contamination. Due to the competitive markets it can become inefficient when the externalities occur, therefore government play’s a crucial role by making policies in an attempt to correct, the externalities. Externalities are a cost or the benefits arising from the economic transactions that can have an impact on the third party, and they aren’t taken into account by those whom undertake that particular transaction. In market economy externalities generally occurs where ever there is a direct effect of the actions of one person or the firm on the welfare of another person or firm in a way that isn’t transmitted accurately through a market system. There two forms of externalities positive and negative, and negative production externality happens whenever the production of a good develops a cost borne by the person outside the production of that good. Simple example of that could be, air pollution that occurs through the production of oil by the oil refinery, the air around the suburb will get polluted and makes the community living close to oil refinery worse off, by diminished health or effect the ability of seeing...
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...Negative Externality… Negative Externality… Whenever there are side effects caused by the private action that can have an impact on other people in crucial ways, we have the problem known as, externalities. The problem arises when it’s a negative consumption and/ or production externalities because there is no such market for them e.g.; noise, air or contamination. Due to the competitive markets it can become inefficient when the externalities occur, therefore government play’s a crucial role by making policies in an attempt to correct, the externalities. Externalities are a cost or the benefits arising from the economic transactions that can have an impact on the third party, and they aren’t taken into account by those whom undertake that particular transaction. In market economy externalities generally occurs where ever there is a direct effect of the actions of one person or the firm on the welfare of another person or firm in a way that isn’t transmitted accurately through a market system. There two forms of externalities positive and negative, and negative production externality happens whenever the production of a good develops a cost borne by the person outside the production of that good. Simple example of that could be, air pollution that occurs through the production of oil by the oil refinery, the air around the suburb will get polluted and makes the community living close to oil refinery worse off, by diminished health or effect the ability of seeing...
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...external benefits are ignored (externalities), public goods are not provided, or merit goods are not provided in sufficient quantity. Imperfect competition From a business’s point of view competition is bad as it drives down the price of the product they are trying to sell but for the economy as a whole it is a positive thing as many customers are having their wants and needs met. Imperfect competition can cause market failure through monopoly, a monopoly is a singular supplier of a product which can lead to exorbitant pricing or inferior products as consumers have no other options. Another cause of imperfect competition is an oligopoly which is very few dominant suppliers providing a product giving one supplier the opportunity to drive up the price allowing the other suppliers the freedom to do the same. An oligopoly also increases frequency of cartels. A cartel is a mutual agreement between suppliers and possibly producers to keep prices at a set price leaving consumers with no option to shop around for a better price. Externalities An externality is something that is a by-product or consumption which affects a third party externally. Externalities can be positive or negative. Positive externalities have a positive effect on persons through production or consumption of the product. Some examples of these benefits could be education which not only benefits the student but also society gains an educated workforce. Another beneficial externality would be inoculations of children...
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...retail market for coffee if there is a large increase in city centre rents. 4.In the UK, students face increasing tuition fees. Discuss the benefits and costs to society of abolishing all tuition fees. 5.Discuss three policies to reduce the level of cigarette smoking amongst under 21s. 6.Discuss the extent to which governments should subsidise companies who are developing cars which run on clean fuels such as hydrogen? 7.Discuss whether the government is mistaken to worry about monopoly power? 8.Discuss the advantages and disadvantages of the government intervening in agricultural markets? 9.Discuss the effects on UK business of a rise in fuel prices. 10. Discuss whether the government should end free health care for people and make them take out private health care insurance like in the US? 11. Discuss the role that pollution permits could play in reducing global warming 12. Discuss the case for implementing a congestion charge for driving into Birmingham city centre. 13. Discuss the micro...
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...What is Demography? Demography is the scientific study of human population, including its size, distribution, composition, and the factors that determine changes in its size, distribution, and composition. Objects: Dynamic VS Static Demographic Focuses 1. Size: the number of population in a given areas at a given time. 2. Distribution: population dispersion in geographic space at a given time. 3. Composition: the number of person in sex, age, and other “demographic” categories. 4. Population dynamics: birth, death, and migration. 5. Socioeconomic determinants and consequences of population change --- Population Study. Population Characteristics Population has three compositions (in terms of static): natural composition: by age and sex spatial composition: by province and by urban-rural areas social composition: by marital status, educational status, nationalities, working status, etc. Accordingly, population has three changes (in terms of dynamics): natural change: birth and death migration change: emigration and immigration social change: marriage and divorce, enrollment and drop out Population dynamics affects the population composition. Population composition can be expressed at a point of time, which was called time-point index; Population change can be expressed within duration of time, which was called period index. The Feature of Demography Demography is rarely found as an independent academic...
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...Walt Disney’s Celebration: A Success Story of Internalizing Externalities Introduction Externalities are costs or benefits that are incurred by parties outside of the transaction for a good or service (Caplan, 2008.) In regards to land use planning, externalities arise from the development of land, and these externalities can be positive or negative. For example of a positive externality is when the use of land in a particular property increases the value of the surrounding properties, or a negative externality arises when the particular property is developed resulting in negative change in value to surrounding properties. There are several ways to internalize externalities: The first is the imposition of Pigovian taxes or subsidies equal in value to the externalities; second, the Coasian solution is to clearly define property rights which results in bargaining bringing about the optimal outcome; and third, which is the focus of this paper, the use of land regulation, namely zoning, to plan land development (Caplan, 2008). With respect to Pigovian taxes, given that land supply is relatively inelastic, these will have little effect on the mitigation of negative externalities of, for example, urban sprawl (Caplan, 2012). Further, the Coasian solution to deal with land use externalities involves deal-making between parties which, if there are no transaction costs result in the internalization of externalities. In practice, the Coasian solution is at work in tandem with...
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...Lecture 3: Arguments against trade * The job argument * Trade with other countries destroys domestic jobs. Economists’ response: * Free trade creates jobs at the same time that it destroys them. * Workers move from the importing industries to those industries in which a country has a comparative advantage. * The transition may impose hardship on some workers initially; in the long term, the country as a whole can enjoy a higher standard of living. * The national security argument * A country should protect industries that are vital for national security. Economists’ response * Protecting key industries may be appropriate when there are legitimate concerns over national security. * However, producers may exaggerate their role in national defence in order to obtain protection from foreign competition at consumers’ expense. * The infant industry argument * New industries need temporary trade restrictions to help them get started. Economists’ response: * To apply protection successfully, the government would need to ‘pick winners’. * If an industry will be profitable in the future, the owners of the firms should be willing to incur temporary losses in order to obtain the eventual profits. * The unfair competition argument * If firms in different countries are subject to different laws and regulations, then it is unfair to expect the firms to compete in the international marketplace...
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