Externalities and Pigouvian Taxes
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- เผยแพร่เมื่อ 16 ต.ค. 2024
- In this video I explore a negative externality situation. I solve for the market quantity and the socially optimal quantity of a good. Then I suggest and solve for a Pigouvian tax that would lead the market towards the optimal outcome by making decision makers internalize their otherwise external costs. This is appropriate for any microeconomics course that does not require calculus, as well as elective courses such as Industrial Organization or Environmental Economics.
For what it is worth, I realize that the smoking example with these equations is less than realistic. I just wanted to do some math for you.
started smoking because of this! but seriously thanks!
Thank you so much, for the explanation! coherent and articulate
Glad it helped! Good luck!!
Thank you soooo much , really appreciate it❤😊🎉Your teaching really helps me . Solve the problem I used a lot of time to think of .Don’t want to make comparison,but your explanation in video ways is clearer than my tutor write a paragraph explaining.😢Finally,I know how to do these questions.
Yay! That is awesome! Glad it helped!
hi i had this topic at my university in germany in german asweill ....i didnt get it til i saw this simple video of this topic in english ......im so glad that i found this video......thank you so much!!!!!!
Glad to help! Good luck!
Could you please help me with a multiple choice question that I have?
The optimal corrective tax of a negative externality is imposed on the difference between:
a) MSC and MPC at the optimal output
b) P and MPC at the optimal output
I think that both a) and b) are correct because at the optimal Q: MB=P=MSC and the tax is supposed to equal MEC=MSC-MPC , but my Professor says that only one of them is correct.
I'd be so thankful if you could explain to me the correct answer.
I don't want to go into to much specific detail on your work, but I can say this:
At the optimal Q, MB=MSC, but P=MSC=MB may not be true. If it were true, then we wouldn't have an externality problem.
Good luck!
@@MattBirch Thank you so much for your help!I really appreciate your quick response.Greeting from Greece!
Very good explanation 👏🏻 so helpful
Great mr lecture
This video was really helpful for me! Thanks much!!
My pleasure!
I am glad to help.
Tell a friend if they need help too.
Is it possible to sum Marginal Cost with external cost. Why not change the external cost to marginal external cost first, so marginal social cost is marginal cost plus marginal external cost?
Fair question. What you wrote is right.
Some books are a little less careful about notation and do not explicitly refer to the external cost as being external marginal cost, and so I was also a little less careful when making this video for my class.
What you wrote is good. This math is still good, so long as you interpret the external cost as marginal.
@@MattBirch how can we interpret the external cost as marginal external cost. Its different right. Once i try to use marginal external cost instead of external cost, and the answer is different
@@muhammadfadhilah3640 The cost I wrote IS the external marginal cost.
What you are referring to as external cost, my book referred to as total damage. What you are referring to as marginal external cost, my book referred to external cost. It isn't my favorite, and it is a bit confusing, but I chose to make this video consistent for my students. I hope this clarification helps.
You are on the right track, conceptually. keep it up!
Good luck!
Will the MC curve coincide with the MSC curve after the tax/subsidy?
MC+tax=MSC at the optimal level of output, since we set tax=externality.
thanks so much for this
Heck yes! And good luck!