Negative externalities of production and consumption Flashcards
(14 cards)
What is a negative externality?
A negative externality is cost to a third party outside of the price mechanism
What is a negative externality of production?
A negative externality of production is a cost to third parties by producers
Wocial cost
Social cost= Private cost + External cost
Taxation
Taxation is a charge levied by the governemnt onto individuals or firms
Indirect tax
Indirect tax is tax from buying goods or service.
Pollution permits Caps
Government sets pollution in order for factories to produce at the social equilibrium (ETS eu and eu believe 2bn tonnes of carbon pollution is acceptable to produce at a social equilibrium)
Auction Pollution Permit
The government holds auctions in which firms are able to buy the 10% remaining that the government have . This raises government revenue allowing them to subsidise eco-friendly firms.
What do tradable pollution permits allow firms to do?
It gives firms that can reduce pollution at a lower an incentive to reduce pollution so that they can sell their permits to firms that have a higher cost to reduce pollution.
How does the cap and trade system work
?
Firstly, the government sets a cap on how much pollution it will allow each year - this is the estimated socially efficient level of pollution. It then divides up its permits between firms until the cap is reached.
Tradable pollution permits
Firms can buy and sell pollution permits with each other.
How are pollution permits distrubuted?
Pollution permits are distributed equitably for example a firm that produces more pollution will receive more pollution permits from the government than a firm that produces less.
What is a pollution cap?
A cap the government sets each year to decide how much pollution their should be?
Regulation
The rules and laws imposed by the government on firms and industries to modify their behaviour and address market failures
