I love you man! You just helped me a zillion times over with your videos. I finally know what welfare loss is now! Its the cost of a market failure, and to reduce market failure, a government has to intervene, through one of various methods i.e. taxation, to reduce the size of the market failure or erradicate it completely. Much love!
Hi, Thank you for all of your videos. I'm taking microeconomics via an online course; so, therefore you are my professor. And I couldn't be happier! Thanks!
Just to clarify folks, even though the tax doesn't equal the MSC, it reduces the market failure and solves the market failure to an extent. If you think about it, the amount of tax the government should put to equal the MSC is very hard to find, and so if underestimated-leads to over production, and if overestimated- leads to under production. Hope this makes sense, great vid, Ally- AS student
@alih15 it is a correction as long as the size of the welfare loss created by the negative externality has been reduced. It does not have to be entirely removed to be a correction. The size of the tax will dictate how much the welfare loss gets reduced. A big enough tax could remove the welfare loss altogether.
There are myriad negative externalities in both production and consumption of tobacco. Healthcare costs, litter, fire damage, forest clearance for tobacco plantations are just a few costs created by the production and consumption of tobacco, yet paid by third parties - not buyers and sellers of the product.
@ErebusTV Hello- no you cannot use D and S curves - they are different things! You really have to think about the purpose of the curves and what points on the curves mean to realise the differenc between the two kinds of curves. Regards, PAJ Holden
The issue of fire damage is a bit more complex, but essentially very similar. Again, this is a risk taken by the property owner. Since most fires start on government land due to the fact that it is poorly maintained (I know, I live in california where there are wild fires EVERY year), it's a little hard to take the smoking issue seriously (since there are much bigger fish to fry [than smokers] when it comes to fire prevention).
I have the same thing in my diagram for negative production externality, MPB instead of MSB. But I think it doesnt really make a difference in this case because as he said in a negative externality there is no distinction for private and social benefits. But I guess you can go with what you were taught. Good luck on monday!
WoW Professor Phil, Thanks for your lessons. They are such a great way to brush up on all that economic stuff from years ago that we have all forgotten. Love your style and clarity. Cheers Andy PS have you sorted out the "Greek Crisis Problem" yet?
Your videos have been used in my economics AS level class in London, England. They have been really helpful. My Microeconomic module is in 2 weeks and i still have questions about how you know which linear line is MPC or MSC for example. If you could give me a example question and explain this theory to me, i would be more than greatful. Thank you.
Hello, I was wondering if I could get your opinion on what would be the more preferable alternative policy with regard to externalities. Should the gov't tax (not so much regulate what can be built or bought) those goods and services that have an externality effect in order to seek to correct this "market failure" or, more properly put imo, failure of traders to realize the full scope of ripple effects on their trades. I can guarantee you a producer who has a positive externality on a group
you can see his much recent videos on negative and positive externalities. For me, he's the teacher that explains everything very clearly, it's almost magical. Shame he stopped making videos, best bloke on TH-cam for Economics imho.
As for litter and the cost incurd in it's removal, well... that is not a price covered by a third party. Rather, it is the price a property owner pays for the benefit of allowing smoking on their property. A cost (the cost of litter removal) is being exchanged for a benefit (the freedom to smoke).
Hi, it's a great tutorial. I don't really understand when to use the MSC and MPC curve... As in I'm not sure if we're supposed to use it together when we're talking about externalities? Thank you so much!
A question about socially optimal size, this is really puzzling me!: Say that the PMB and PMC curves have equal elasticities and the the SMC and SMB curves are shifted out by the same amount (the negative externalities are equal to the positive externalities). Socially optimal size would then have output at the same as the free market size, yet the price would be higher, indicating a loss of consumer surplus and thus welfare? Wouldn't this be less preferable than the free market size? Thanks
Love your videos! I'm taking IB economics and we were told that there are two different graphs for negative externalities of consumption and production, you only have one...? which is it? i'm confused
Thank you very much on such big help you have been giving us, if I might, do you teach an IBO school there in Athens, I went there for my easter holidays, it was great, pretty similar as Lisbon from where i am.. do you teach IBO schools? Looking forwards to see more of your videos on Public Provision, Private Subsidies and vouchers ... thank you very much for such big help here!
altogether, a great speed and agility to handle them while they're going on, and with great dept so that we can calculate (would you even posit completely?) their full effects. You have to remember, we're talking about gov't here. If they could comprehend externalities on a deep level with tremendous speed and foresight, wouldn't they're budget projections be FAR more accurate and their programs more efficient with little to no unintended consequences? Look at the unintended
would like to see reimbursement for that; it's not just the creators of negative externalities who don't want something done about it. But, my question to you is is it preferable to put this power in the hands of gov't, deal with their infamous miscalculations, and pray that there is no crony capitalism going on or Do we just deal with the complex nature of complex market ripple effects and find solace in the fact that capitalism will eventually deal with accumulations of negative
Question- If a tax is introduced, does that also raise the marginal social benefit, as the tax is (thoretically) in turn spent on society by the government. For example, the high tax on tobacco not only tries to reduce consumption but also provides a large income for gov which is good for everyone. exam tomorrow afternoon lol a bit late :p
k, after finishing the video, I don't think you can say that the market completely ignores externalities indefinitely. You will have trades being made by traders who don't comprehend full effects, but the market does know the full effects as the conditions affected by externalities are the very same conditions that arrange costs of production, prices, and profits. You may get to a point where you have overproduction via distortion in information from an externality, however, the
I'm doing GCSE Economics and i am a bit confused :( the costs that separate social costs and the entire costs from private costs. What does that mean? Can someone give me a watered down definition with a simple example? Economics doesn't come easy to me -.-
Hi Paj I understand why the curve showing consumption ( the benefit curve) is labeled MSB as it shows the benefit to society however I always thought that the first benefit curve that is drawn should always be MPB. Is this the case or is the MSB curve be = to MPB. Thanks so much for your videos they are really helpful, can you please get back to me as soon as you can because my exam is on monday. Thank you
market eventually compensates when the time comes. What externality taxation seeks is an unattainable amount of market knowledge. This is the very same reason why centrally-planned economies underproduce because there is an overreliance on the ability of a man or small group to understand the price system, profit signals, and the infinite amount of information sent back and forth instantaneously from such a consolidated position.
they need not be parallel. Many texts draw them diverging at higher output levels. I draw them parallel for simplicity's sake - that's how I teach students at my college.
So you determine what is "socially optimum" by something other than what society chooses? That's fascinating. I wonder what the external costs of a criminal gang imposing itself on society are? You should do a chart for that. You could show us the failure of coercive monopolies to provide the proper amount and type of goods and services to society. Then you might conclude that such monopolies ought to be abolished by society since they are anti-social.
As for forest clearance, I'm not sure what you are referring to, but I do know that tabacco companies do not have the power to force people to pay for tabacco production. It's probably safe to assume that you are really referring to an externality caused by government (and trying to blame it on tabacco companies). Just a guess...
just a question for somebody who wants to explain, is the vertical axis Costs OVER Benfits? Or is it Costs AND Benifits, if its the latter, then Im confused haha
externalities like pollution when it gets to a point where consumers are literally purchasing cleaner air and cleaner environments? You see, it's very easy to set up a very simple, isolated example of an externality to prove "markets can fail," which I find mislead as markets still comprehend the changing conditions effected by positive and negative externalities, but it becomes monumentally more difficult to calculate externalities with a foresight that prevents them from happening
at how the ICC was bought off by railroad companies and then trucker companies, look at what the dept of energy does to gas prices, look at what public education and the decline in the American student, etc. I could go on forever, sir. Is this the same gov't we're to expect to calculate complex, potentially unsolvable equations or do you have a magic gov't that has been hiding for 6,000 years of recorded human history? Thank you for your time and if you choose to respond.
You can never 100% accurately measure the effect on an externality. Therefore, a tax will help fix the problem. But will not necessarily remove the problem altogether. Therefore it is not completely efficient.
This time last year i used your videos to get me through A levels, Ended up with an A.
Now at university, still use your videos.
Amazing videos.
Thanks, I am still teaching, in Athens Greece. I am available for birthdays, parties and economic crises.
lol, this video isn't just for A2 students. It has helped me revise negative transport externalities for my MSc Transport Degree. So thanks!
I love you man! You just helped me a zillion times over with your videos. I finally know what welfare loss is now! Its the cost of a market failure, and to reduce market failure, a government has to intervene, through one of various methods i.e. taxation, to reduce the size of the market failure or erradicate it completely.
Much love!
this guy is an original G
Again a superb video. As a teacher you're videos are priceless to get across difficult topics to students.
Thanks Again
Hi, Thank you for all of your videos. I'm taking microeconomics via an online course; so, therefore you are my professor. And I couldn't be happier! Thanks!
THANK YOU SO MUCH, this question came out in my paper today. you really are my savior. looking forward to more videos from you!
tomorrow i have AS level economins exam..!dese videos are best for revision..
My friend got pass only by viewin dese videos!
ThANKS for sharing!
Thank you very much, I found this and your other videos on externalities ( these are the ones I have watched so far) extremely helpful.
THank you so much for helping me survive finals. all of your videos are very easy to understand.
Jessie Dinh sup
Thank you very much pajholden. Extremely helpful for a quick refresh before my exam tomorrow.
Thank you very much for all the vids, they have helped me heaps for my degree.
Just to clarify folks, even though the tax doesn't equal the MSC, it reduces the market failure and solves the market failure to an extent. If you think about it, the amount of tax the government should put to equal the MSC is very hard to find, and so if underestimated-leads to over production, and if overestimated- leads to under production. Hope this makes sense, great vid, Ally- AS student
omg paj i love you. you save my life for every test. my teacher is nothing compared to you.
never stop making videos:) hope to meet you one day
Thank you! You make much more simply to understand! Even if I have to watch you video more than once.
i really feel like i love you ! lol, you're saving me from failing with all your videos ! you should come to brazil and teach me :)
i love this guy, he's so good
@alih15 it is a correction as long as the size of the welfare loss created by the negative externality has been reduced. It does not have to be entirely removed to be a correction. The size of the tax will dictate how much the welfare loss gets reduced. A big enough tax could remove the welfare loss altogether.
Amazing - thank you SO much - you are a great teacher.
Your videos are extremely helpful! Thank you for making them!
thanks holden you are my vertual teacher
usman from
Pakistan
There are myriad negative externalities in both production and consumption of tobacco. Healthcare costs, litter, fire damage, forest clearance for tobacco plantations are just a few costs created by the production and consumption of tobacco, yet paid by third parties - not buyers and sellers of the product.
TF THIS GUY IS AMAZING, SIMPLIFIED IT MUCH MORE THAN MY TEACHER THANKS ALOT MAN
you're a good friend to microeconomics. thanks again. :)
Great explanation of welfare loss, it helped me a lot... thanks
Clear and concise, very good. Thank you.
@ErebusTV Hello- no you cannot use D and S curves - they are different things! You really have to think about the purpose of the curves and what points on the curves mean to realise the differenc between the two kinds of curves. Regards, PAJ Holden
please do a video on merit and de-merit goods, just in general. thanks your videos are quality. helps alot.
Phil explains it so well i feel like i am cheating on my exam when i watch his videos! hehe! :)
this is so good for revision....your voice is so soothing btw like my dads.x
Thanks for the excellent video ! Would appreciate if you could post a video on positive externalities too
The issue of fire damage is a bit more complex, but essentially very similar. Again, this is a risk taken by the property owner. Since most fires start on government land due to the fact that it is poorly maintained (I know, I live in california where there are wild fires EVERY year), it's a little hard to take the smoking issue seriously (since there are much bigger fish to fry [than smokers] when it comes to fire prevention).
I have the same thing in my diagram for negative production externality, MPB instead of MSB. But I think it doesnt really make a difference in this case because as he said in a negative externality there is no distinction for private and social benefits. But I guess you can go with what you were taught. Good luck on monday!
WoW Professor Phil,
Thanks for your lessons. They are such a great way to brush up on all that economic stuff from years ago that we have all forgotten. Love your style and clarity.
Cheers Andy
PS have you sorted out the "Greek Crisis Problem" yet?
Your videos have been used in my economics AS level class in London, England. They have been really helpful.
My Microeconomic module is in 2 weeks and i still have questions about how you know which linear line is MPC or MSC for example. If you could give me a example question and explain this theory to me, i would be more than greatful. Thank you.
one of our economics teachers is leaving at the end of this year, fancy coming and teaching us?
thanks for this, hopefully should help me to get an A
Hello, I was wondering if I could get your opinion on what would be the more preferable alternative policy with regard to externalities. Should the gov't tax (not so much regulate what can be built or bought) those goods and services that have an externality effect in order to seek to correct this "market failure" or, more properly put imo, failure of traders to realize the full scope of ripple effects on their trades. I can guarantee you a producer who has a positive externality on a group
Darn you're good! I wish you were my Economics teacher!
Really helpful videos, but would be much appreciated if the camera quality was a little higher so it would be easier to read the board. Thanks.
you can see his much recent videos on negative and positive externalities. For me, he's the teacher that explains everything very clearly, it's almost magical. Shame he stopped making videos, best bloke on TH-cam for Economics imho.
my saviour
my daddy
wowo was lost but now i am found, thanks alot i am gonna pass my exam now..!!
As for litter and the cost incurd in it's removal, well... that is not a price covered by a third party. Rather, it is the price a property owner pays for the benefit of allowing smoking on their property. A cost (the cost of litter removal) is being exchanged for a benefit (the freedom to smoke).
IB eco exam tomorrow :P this guy is brilliant!
Hi, it's a great tutorial.
I don't really understand when to use the MSC and MPC curve...
As in I'm not sure if we're supposed to use it together when we're talking about externalities?
Thank you so much!
Thank you so much!!!!!!!!1 Got exam resit 2moro. good luck to anyone who does as well
You sir are a king. Thank you!
A question about socially optimal size, this is really puzzling me!:
Say that the PMB and PMC curves have equal elasticities and the the SMC and SMB curves are shifted out by the same amount (the negative externalities are equal to the positive externalities). Socially optimal size would then have output at the same as the free market size, yet the price would be higher, indicating a loss of consumer surplus and thus welfare?
Wouldn't this be less preferable than the free market size?
Thanks
are single-use plastic bags negative externalities in consumption or in production?
Thank you so much. I appreciate your work.
Love your videos! I'm taking IB economics and we were told that there are two different graphs for negative externalities of consumption and production, you only have one...? which is it? i'm confused
Thank you very much on such big help you have been giving us, if I might, do you teach an IBO school there in Athens, I went there for my easter holidays, it was great, pretty similar as Lisbon from where i am.. do you teach IBO schools? Looking forwards to see more of your videos on Public Provision, Private Subsidies and vouchers ... thank you very much for such big help here!
Mr. Holden, could you do one on positive externalities? Thank you.
good video, very simply explained !
thank you for your video! it was really useful for my revision!
can you use supply and demand to show this? and just say that ''if we include external cost the supply curve will shift to the left''?
altogether, a great speed and agility to handle them while they're going on, and with great dept so that we can calculate (would you even posit completely?) their full effects.
You have to remember, we're talking about gov't here. If they could comprehend externalities on a deep level with tremendous speed and foresight, wouldn't they're budget projections be FAR more accurate and their programs more efficient with little to no unintended consequences?
Look at the unintended
Can you kindly post a video on positive externalities diagram? Tks & happy new year.
thankyou soo much didn't have a clue in class what this was
you are just awesome. thanks for the videos...
You saved me! Thank you!
Text and professor's lecture sucked!
would like to see reimbursement for that; it's not just the creators of negative externalities who don't want something done about it. But, my question to you is is it preferable to put this power in the hands of gov't, deal with their infamous miscalculations, and pray that there is no crony capitalism going on
or
Do we just deal with the complex nature of complex market ripple effects and find solace in the fact that capitalism will eventually deal with accumulations of negative
Do u have a video on inflation?
Question- If a tax is introduced, does that also raise the marginal social benefit, as the tax is (thoretically) in turn spent on society by the government.
For example, the high tax on tobacco not only tries to reduce consumption but also provides a large income for gov which is good for everyone.
exam tomorrow afternoon lol a bit late :p
k, after finishing the video, I don't think you can say that the market completely ignores externalities indefinitely. You will have trades being made by traders who don't comprehend full effects, but the market does know the full effects as the conditions affected by externalities are the very same conditions that arrange costs of production, prices, and profits. You may get to a point where you have overproduction via distortion in information from an externality, however, the
@pajholden what a come back :)
I'm doing GCSE Economics and i am a bit confused :( the costs that separate social costs and the entire costs from private costs. What does that mean? Can someone give me a watered down definition with a simple example? Economics doesn't come easy to me -.-
Hi Paj I understand why the curve showing consumption ( the benefit curve) is labeled MSB as it shows the benefit to society however I always thought that the first benefit curve that is drawn should always be MPB. Is this the case or is the MSB curve be = to MPB. Thanks so much for your videos they are really helpful, can you please get back to me as soon as you can because my exam is on monday. Thank you
i have a report about market externalities and i don't understand it at all! specially the graph. :[
i need help. :-/
market eventually compensates when the time comes. What externality taxation seeks is an unattainable amount of market knowledge. This is the very same reason why centrally-planned economies underproduce because there is an overreliance on the ability of a man or small group to understand the price system, profit signals, and the infinite amount of information sent back and forth instantaneously from such a consolidated position.
thank god i found this vid, my teacher couldnt explain this at all
you need to explain what underlies both curves, especially the marginal benefit one
Would you then concede externality taxation to be merely wishful thinking?
they need not be parallel. Many texts draw them diverging at higher output levels. I draw them parallel for simplicity's sake - that's how I teach students at my college.
do u go to langley park
Absolute genius
awesome u make a-level economics easier from london woooop!
thank so much,wonderful videos.
can you pls explain free market forces, i don't understand it.
Thank you very much..great prof !
paj. you are a god!
So you determine what is "socially optimum" by something other than what society chooses? That's fascinating.
I wonder what the external costs of a criminal gang imposing itself on society are? You should do a chart for that.
You could show us the failure of coercive monopolies to provide the proper amount and type of goods and services to society. Then you might conclude that such monopolies ought to be abolished by society since they are anti-social.
As for forest clearance, I'm not sure what you are referring to, but I do know that tabacco companies do not have the power to force people to pay for tabacco production. It's probably safe to assume that you are really referring to an externality caused by government (and trying to blame it on tabacco companies). Just a guess...
just a question for somebody who wants to explain, is the vertical axis Costs OVER Benfits? Or is it Costs AND Benifits, if its the latter, then Im confused haha
any negative spillover effect imposed on a third party
can you please do a video on msb and mpc
i'll be reporting about market externalities and i don't understand it at all ! especially the graph. :[ can someone please help me?? :-/
omg thats mr. holden, now hes headmaster in my school.
THANk YOU U DA REAL MVP I HV A QUIZ TMR
beautiful lad!
@pajholden Thank you sooo much i have been watching your vids and they have helped me soo much. cheers again
Good job,
Thanks
Oh thanks man, really helped.
Thanks!
@pajholden amazing economics teachers with a sense of humor, brilliant :')
externalities like pollution when it gets to a point where consumers are literally purchasing cleaner air and cleaner environments?
You see, it's very easy to set up a very simple, isolated example of an externality to prove "markets can fail," which I find mislead as markets still comprehend the changing conditions effected by positive and negative externalities, but it becomes monumentally more difficult to calculate externalities with a foresight that prevents them from happening
at how the ICC was bought off by railroad companies and then trucker companies, look at what the dept of energy does to gas prices, look at what public education and the decline in the American student, etc.
I could go on forever, sir. Is this the same gov't we're to expect to calculate complex, potentially unsolvable equations or do you have a magic gov't that has been hiding for 6,000 years of recorded human history?
Thank you for your time and if you choose to respond.
@TheMitchmaestro Paj > every economics teacher.
You can never 100% accurately measure the effect on an externality. Therefore, a tax will help fix the problem. But will not necessarily remove the problem altogether. Therefore it is not completely efficient.
Thank you so much!!! :)