Health

The process of transferring the cost of metal ores and other minerals removed from the earth to an

4. You are now familiar with government and how it plays a role in our economy. What are the advantages and disadvantages of governmental involvement? What changes would you make to improve government’s role?

Externality is defined as an effect of a decision on a third party not taken into account by the decision maker. There are two types of externalities being positive and negative. Second hand smoke would be a negative externality. The smoker does not take into account the smoke emitted from their cigarette. Education would be considered a positive externality. When an individual is educated, their

4. What are externalities, and how do they typically affect the price of a good or service?

Graph A. This graph shows allocative efficiency because the company is producing too much soda at a low cost. B. Negative externalities are costs of a transaction that is paid by someone who is not from a party: not the buyer and not the seller, but the real cost is paid by social cost. C. At Q1 and Q2 there is an over allocation. At Q2, we have MSB< MSC because too much is being produced.

The demand for products that provide benefit externalities is generally ________ the demand for products that do not. Marks:

There is evidently existence of market failure in education. Extract B, line 1 suggests that universities need more income, and they were finance largely through government

B. Economy- The economy improved in The United States by adding transportation, communication and technology.

Negative externalities are detrimental third-party effects caused by the production and/or consumption of a good. A public good is a good provided free of charge to the consumer, by the government. A public good is non-excludable and non-rivalrous. A merit good is a good that gives positive externalities upon production and/or consumption. A merit good is non-excludable, yet rivalrous.

III. EXTERNAL ENVIRONMENT A. Societal Environment Economic Opportunities George W. Bush has been elected as the new President of the United States. One of his goals is to implement a tax-relief program that will help stimulate consumer spending (Bush). This could increase the amount of air traffic if consumers choose to spend this unexpected income on travel. This could then boost airline revenues and allow for more completed purchases on Boeing's commercial aircraft.

In conclusion, the consumption of cars creates both positive and negative externalities. However the negative externalities it is more than its positive externalities so producers tend to overvalue and over produce. The government tries to intervene by imposing taxes on the production of cars. However this is not usually effective as the imposion of taxes depends on the elasticity of the product.The demand of cars is not price elastic.

As seen from figure one, negative externality creates a social marginal cost that is substantially higher than the actual level of coal-seam gas mining (private marginal cost). It is evident that coal seam mining has an ‘un-priced’ cost, which is not included in the private marginal cost. Therefore, it results in a larger quantity being traded ‘Q1’, compared to what is considered as the quantity desirable from a social standpoint ‘Q2’.

The result is an unfair distribution of impacts that does not maximize social surplus. Weimer and Vining call externalities a “missing market” (p. 92). It is feasible to imagine externalities being accounted for by a private market, in cases where, for example, an externality is manifested into a change in land value. However, these cases are exceptional. Governmental must typically step in to value externalities, such as charging fines for polluting industry, in order to account for social costs and benefits.

An Externality is when costs or benefits of certain activities spill or fall into third parties that have nothing to do with the initial situation in hand; its like a side effect or consequence of an activity that affects other parties who did not choose to incur that cost or benefit.

externalities keep the market from reaching allocative efficiency because the gains or losses generated are external to the pricing system; they are unpriceable. The transaction costs of externalities misallocation of resources or a failure of the market economy to generate a Pareto optimum. positive externalities 3 types of interventions the government may engage in: