TAILIEUCHUNG - Lecture Economics - Chapter 14: Environmental economics

In this chapter, you will learn to solve these economic puzzles: Can government intervention reduce environmental quality? Why do competitive markets produce too large a quantity and charge too low a price for products that pollute? How can government legislation, taxes, and permits achieve environmental efficiency?. | Chapter 14 Environmental Economics Key Concepts Summary Practice Quiz Internet Exercises ©2000 South-Western College Publishing * In this chapter, you will learn to solve these economic puzzles: Why do competitive markets produce too large a quantity and charge too low a price for products that pollute? How can government legislation, taxes, and permits achieve environmental efficiency? Can government intervention reduce environmental quality? * What assumption is made in this chapter? There is sufficient foreign and domestic competition to allow us to use the perfectly competitive model * When does Economic Efficiency exist? Efficiency exists when the price to consumers, reflecting marginal benefit, equals marginal cost * Who is a Third Party? People outside the market transaction who are affected by the product * What are Private Benefits and Costs? Benefits and costs to the decision maker, ignoring benefits and costs to third parties * What are Externalities? Benefits or costs that are not considered by market buyers and sellers * What is an example of an Externality? Air pollution is an externality that affects third parties not driving automobiles * What is an example of a Positive Externality? The enjoyment you derive from your neighbors well-kept yard * What happens when Externalities are present? Competitive markets are not likely to achieve economic efficiency * What are Social Benefits? The sum of benefits to everyone, including both private benefits and external benefits * What are Private Costs? Production costs of capital, labor, land, and entrepreneurship * What are Social Costs? The sum of costs to everyone, including both private costs and external costs * When is Social Welfare maximized? It is achieved when marginal social benefit equals marginal social cost * Why can’t businesses acting on their own solve the problem of Pollution? The added costs of cleaning up the environment will make .

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