Professional Documents
Culture Documents
Externalities
Externalities
Externalities
PUBLIC GOODS
EXTERNALITY
This is the uncompensated income of one person’s actions on the well-being of a
bystander. It arises when a person engages in an activity that influences the well-being of
a bystander
TYPES OF EXTERNALITIES
Governments can use taxes as an incentive for producers to reduce the pollution they
create. Taxes used this way are called Pigovian taxes. By setting the tax equal to the
Tax Pollution marginal external cost, firms would be made to behave in the same way as they would if
they bore the cost of externality directly.
POSITIVE EXTERNALITIES
OBTAINING
POSITIVE Private subsidies
EXTERNALITIES
Vouchers
PUBLIC GOODS
Demand is equal to
marginal benefit to society
QUANTITY OF STREET
LIGHTS
ISSUES WITH PUBLIC GOODS