ECON 1 Lecture Notes - Lecture 18: Ecotax, Competitive Equilibrium, Externality
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ECON 1 Full Course Notes
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Each flamingo caused external cost of . A tax of on sellers increased profit. Tax made private cost = social cost. In real world, polluters may reduce damages by changing mode of production. In real world, polluters produce many types of goods. Regulating pollution in this more complicated world. May simply change their mode of production instead, will probably still produce. Place limit on each source and reduce limit over time. Costs of cutting back are not the same for each source. Maybe only able to produce some based on the technology. No incentive for further cutbacks once limit is reached. Without regulation, emits 3 tons of so2 per day. Can cut back emissions, but costly (older technology) What is the benefit for 1 ton it derives from that use? ( = ) Also emits 3 tons if no regulation. Cost of regulation: + + + = .
