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Externalities - Coggle Diagram
Externalities
Government Interventions
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Challenges
Tax collection is difficult when taxing individuals, thus easier to tax firms
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Marginal Concepts
Marginal Private Cost (MPC): Costs generated by producers (e.g., labor, raw materials).
Marginal Social Cost (MSC): MPC + External Costs (e.g., pollution).
Marginal Private Benefit (MPB): Benefits received by consumers (e.g., education).
Marginal Social Benefit (MSB): MPB + External Benefits (e.g., societal benefits of education).
Key Definitions
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Externalities
Unintended side effects or consequences resulting from economic activities that affect uninvolved third parties
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Market Failure
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Occurs when resources are not allocated optimally, leading to a loss of social welfare.
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Types of Externalities
Negative Externalities
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Government Interventions
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Regulations
Set emission limits or ban certain activities (e.g., smoking bans in public places)
Positive Externalities
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Government Interventions
Subsidies: provide financial incentives to encourage production/consumption (e.g., subsidizing education or vaccines)
Public Provision: Government providing goods or services directly (e.g., public schools)
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