GSF 1025 Lecture Notes - Lecture 9: Common-Pool Resource, Externality, Pigovian Tax
Document Summary
An economic activity that has a negative spillover effect. An economic activity that has a positive spillover effect. Less reliance on social programs: higher individual wages = more tax revenues, decreased crime, more innovation. When a market exchange affects other people through market prices. States that private bargaining will result in an efficient allocation of resources. Government solutions: command-and-control direct regulation, market-based policies provide incentives. The tax necessary to incentivize a firm to produce the socially optimal level of output. The subsidy necessary to make an economic agent increase consumption to the socially optimal level. Goods that only one person can consume at a time. Goods that more than one person at a time can consume. Must be paid for in order to consume them. Can be consumed, even if they are not paid for. When an individual does not pay for a good because it is non-excludable.
