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Part 3: Externalities - Coggle Diagram
Part 3: Externalities
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Negative Externalities
Taxes
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Benefits: Fast to implement, can gain revenue
Limitations: Depends on Elasticity of the good and service, difficult to estimate tax, not equitable, as tax everyone, even low income
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Quotas
Benefits: Easy to implement, fast
Limitations: Difficult to estimate, no incentive to further lower (maybe lie emissions) below quota limit, resulting in no new tech, high monitoring costs
Total Ban
Totally remove the MPC essentially, the new DWL is btwn the y-axis, MSB and MSC
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Limitations: Only works if the DWL incurred is lesser than before, cuz it still will incur DWL, high monitoring cots, resentment from public possibly
Tradable Permits
Quotas that need to be bought, usually for pollution etc. Raises MPC to MSC (MPC' = MPC + Price of permit)
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Limitations: Difficult to estimate, if polluting firms but from less polluting firms because it's cheaper than buying more tech, defeats the purpose
Positive Externalities
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Subsidies
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Benefits: Quick, improve equity, reduce social exclusion
Limitations: Costly to implement, difficult to identify who 3rd parties are, too much may result in over consumption/production
Government Provision
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Limitations: Toll on finances, dependent on government
Legislation
Benefits: Easy to implement, effective
Limitations: High costs of enforcement, time lag