Review Externalities:
Identifying Externalities - 2 questions to ask
1) Is the externality being caused by the production of a good or service or by the consumption of a good or service?
2) Does the externality impact society in a positive or negative way?
Examples of Externalities caused by the PRODUCTION of a good or service
Negative impact on society Positive Impact on Society
Pollution from a factory Bee Keepers
Smell from a hog farm Planting trees
Noise from an outdoor rock concert Economic Developmen
- Sports stadiums
- Gold Course
- Airports
Examples of Externalities caused by the Consumption of a good or service
Negative impact on society Positive Impact on Society
Drunk Driving Using public transportation
Smoking Education
Listening to loud music Exercise
Pollution from driving car Vaccines
Government will want encourage Positive externalities
- Subsidies
- Direct Provision of Public and merit goods
- Tax Break
- Price Controls
Government will want to discourage Negative externalities
- Laws/regulations
- Taxes
Continue Concepts:
- Government Intervention
- The effect of an Indirect Tax on the demand for and supply of a product
Resources:
Power Point -
Indirect Taxes and their effect on the demand for and supply of a product.
Homework:
- Read Chapter 5 - The Effect of an Indirect Tax on the Demand for and Supply of a Product, Pages 63-64
