Microeconomics Topic 6 YR2 Flashcards
(22 cards)
Define externalities.
Externalities are costs or benefits imposed on this parties due to an individual’s or firm’s actions that are not reflected in market prices.
What does a negative production externality diagram show?
It shows that the MSC curve is above the MPC curve, with the socially optimal output (Q) being lower than the market equilibrium output (Qe). The welfare loss is the triangle between MSC and MPC from Qe to Q.
What are the two main characteristics of public goods?
Public goods are non-rivalrous (one person’s consumption doesn’t reduce the availability for others) and non-excludable (individuals cannot be excluded from using the good).
Give examples of environmental problems caused by market failure.
Examples include overuse of common resources (e.g., overfishing), pollution (air, water, noise) and climate change from the greenhouse gas emissions.
What is carbon tax, and how does it address market failure?
A carbon tax is imposed on goods/services based on their carbon emissions, shifting the Marginal Private Cost (MPC) curve upward to reflect the Marginal Social Cost (MSC). It internalises the external cost of pollution.
What are the advantages of a carbon tax?
A carbon tax incentivises firms to reduce emissions, internalises external costs, and generates government revenue.
What are the disadvantages of a carbon tax?
Carbon taxes can disproportionately affect low-income households, are difficult to set at the correct level, and may lead to carbon leakage if firms relocate to avoid the tax.
How do subsidies encourage green technology?
Subsidies reduce production costs for renewable energy firms, shifting the supply curve outward, lowering prices, and increasing consumption of green energy.
What are the advantages of subsidies for green technology?
Subsidies encourage innovation, reduce reliance on fossil fuels, and help transition to renewable energy.
What are the disadvantages of subsidies for green technology?
Subsidies have a high opportunity cost for governments and may lead to inefficiency if firms become dependent on them.
What are advantages of tradeable pollution permits?
Tradeable permits cap total emissions, encourage cost-effective pollution reduction, and create a financial incentive for firms to innovate.
What are the disadvantages of tradeable pollution permits?
They require accurate monitoring and enforcement, and the initial allocation of permits can be controversial.
What are command-and-control policies?
Command-and control policies involve government-imposed regulations or standards, such as emissions caps or waste disposal rules.
Whare are the advantage of regulation?
Regulations are direct, clear, and ensure compliance with environmental standards.
What are the disadvantages of regulation?
They can have high enforcement costs and may stifle innovation.
What is the Tragedy of the Commons?
The Tragedy of the Commons describes how common resources, like oceans and forests, are overexploited because individuals at in their self-interest rather than conserving resources.
What are potential solutions to the Tragedy of Commons?
Solutions include assigning property rights to create accountability, implementing regulations like quotas, or introducing permits to control access.
What is the Environmental Kuznets Curve?
The environmental Kuznets Curve suggests that environmental degradation increases with economic growth initially but decreases after a certain income level as societies demand cleaner environments.
What policies address climate change?
Policies include carbon taxes, subsidies for renewable energy, international agreements (e.g., Paris Agreement) and tradeable pollution permits.
How has Sweden addressed climate change with carbon taxes?
Sweden introduced a carbon tax in 1991 (€144/tonne of CO2), leading to reduced emissions while maintaining economic growth.
What is the EU Emissions Trading System (EU ETS)?
The Eu ETS is a cap-and-trade system for pollution permits, which has reduced emissions from power and industry sectors by 42% since 2005.
What are the broader implications of environmental economics?
Long-term global cooperation and coordination are needed to tackle environmental issues effectively, with policies harmonized across nations to maximise impact.
