8 Business Costs and Production

• It's important to protect the environment.

• We'd better get tough on environmental destruction wherever we find it, whatever it takes, because there's only one Earth.

• It's tempting to think that this is a useful social policy.
• When businesses were free to dump their waste anywhere they chose, it was impractical to eliminate all pollution.
• Whenever we extract resources, manufacture goods, fertilize croplands, or power our electrical grid, there will be some amount of environmental damage.
• To ensure that participants in markets are fully accounting for both social costs and benefits, the answer is to examine the tension between social costs and benefits.

• In the previous chapters, we saw that markets provide many ben efits and that participants pursue their own self- interests.
• Sometimes markets need help.
• Some market exchanges harm innocent bystanders and some trades are not efficient because the ownership of property is not clearly defined.
• Externalities and the differences between private and public goods are explored in this chapter.

• Buyers and sellers benefit from trade.

• Externalities are failures in the market.
• In 2010, an offshore oil rig in the Gulf of Mexico operated by Brit allocation of resources in ish Petroleum exploded, causing millions of barrels of oil to spill into the market.

• Many people along the Gulf Coast had their lives disrupted because of the production of oil.
• Tourism and fishing, industries dependent on high environmental quality, were hit particularly hard by the costs of the spill.

• The people who are not part of the congestion and pollution caused by our cars are external costs.

• Some of the mechanisms that encourage external costs of a market consumers and producers to account for the social costs of their actions are considered in this section.

• An externality exists when a private cost and a social cost differ.

• The externality is negative if a third party is adversely affected.
• When the number of vehicles on the roads causes activity to experience negative or positive externalities, it's called a negative externality.

• It is difficult to make consumers and producers take responsibility for the full costs of their actions because of negative externalities.
• Drivers usually only consider the internal costs of reaching their destination.
• Similarly, manufacturers prefer to ignore the pollution they create because addressing the problem would raise their costs without providing them with significant benefits.

• Society would benefit if all consumers and producers paid attention to both the internal and external costs of their actions.
• Governments design policies to create incentives for firms and people to limit the amount of pollution they emit.

• An effort by the city government of Washington, D.C. shows the power of this approach.
• The city instituted a 5-cent tax on every plastic bag a consumer picks up.
• 5 cents doesn't sound like much, but shoppers have responded by using cloth bags or reuse plastic ones.
• In Washington, D.C., the number of plastic bags used every month fell from 22 million in 2009 to 9 million in 2014).

• Some externalities are positive.
• There are positive externalities.

• Education creates a large positive externality for society beyond the benefits to individual students, teachers, and support staff.
• Employers look for qualified employees and are more efficient and productive if they have a more knowledgeable workforce.
• Local businesses have a stake in the educational process because they experience a positive externality from a well educated local community.
• California's Silicon Valley is home to many high- tech companies and is an example of the synergy between local business and higher education.
• In the late 19th century, the leaders of the university felt that the mission should include fostering the development of self- sufficient local industry.

• The creation of Hewlett- Packard, Bell Labs, and Xerox was the result of faculty and graduates starting their own companies after World War II.

• This group of high tech firms gave birth to leading software and Internet firms like 3Com, Adobe, and Facebook.

• Many of the most successful businesses in the area have donated large sums to the university because of the benefits they received.
• The Hewlett Foundation gave $400 million to the humanities and sciences endowment at Stanford University in order to highlight the positive externality of the school.

• The university has received large donations.

• We look at ways to correct negative externalities.
• Supply and demand analysis is used to understand how externalities affect the market.
• In the case of an oil refinery, supply and the difference between what market forces produce and what is best for society should be compared.
• A refinery makes gasoline.
• The release of pollutants into the air and the dumping of waste by- products are some of the negative externalities generated by this complex process.

• When oil refineries are allowed to pollute the environment without limits, they are likely to overproduce.

• The deadweight loss that occurs from overproduction is eliminated.

• When a negative externality occurs, the government may be able to restore the social optimum by forcing market participants to pay for their actions.
• There are three possible solutions.

• The refinery can be required to change production techniques to reduce emissions.

• The government can impose a tax on the refinery to discourage it from producing.
• The firm can be required to pay for any environmental damage it causes.

• The amount of pollution causing activity is reduced by having to pay the costs of imposing pollution on others.
• As a result of its actions, this result is visible.

• The internal and external costs of producing the good are reflected in the new supply curve.
• Because each corrective measure requires the refinery to spend money to correct the externality and therefore increases overall costs, the willingness to sell the good declines or shift to the left.
• The result is a social optimum at a lower quantity.
• The trade off is clear.
• Producers are required to internalize the externality in order to reduce negative externalities.
• Costs do not come without doing so.
• The price goes up because the quantity produced is lower.

• There is always a cost in the real world.

• We considered deadweight loss in the context of government regulation.
• Deadweight loss or an undesirable amount of economic activity can be created by these measures.
• In the case of a negative externality, the market isn't efficient because it isn't capturing the cost of production.
• Once the government intervenes and requires the firm to internalize the external costs of its production, output falls to the socially optimal level, and the deadweight loss from overproduction is eliminated.

• The decision making process is outlined in Table 7.1.
• Society as a whole experiences both internal and external costs, but private decision makers only consider their internal costs.
• We need to find ways to encourage internalization of externalities to align the incentives of private decision makers with the interests of society.

• Metro Washington, D.C., is notorious for traffic, but new express lanes keep traffic moving by using dynamic pricing, which adjusts tolls based on real- time traffic conditions.

• Dynamic pricing helps manage the quantity demanded.
• During less busy times, the express lane tolls can be as low as $0.20 per mile.
• The higher rush- hour rates are designed to keep the express lanes free of congestion.

• Motorists have to weigh the costs and benefits of driving into congested areas because of dynamic prices.
• Motorists make marginal adjustments in terms of time when they drive because of the dynamic pricing of express lanes.
• High demand times, such as the morning and evening rush, see higher tolls for using the express lanes and longer waits in the regular lanes.
• Many motorists attempt to use the Beltway at off- peak times because they are faced with either sitting in traffic (if they don't pay the toll) or being charged more to enter the express lanes at peak- demand times.
• The traffic flow spreads out as drivers internalize the costs.

• Positive externalities, such as vaccines, are the result of economic activities that benefit third parties.

• Economists use supply and demand analysis to compare the efficiency of the market with the social optimum.
• The demand curve is the focus this time.
• A person gets a flu shot.
• The internal benefit is created when the vaccine is administered.
• There is an external benefit.
• Because the recipient won't get the flu, fewer people will catch the flu, which helps to protect those who don't get flu shots.
• Positive externality to the rest of society can be provided by vaccines.

• There is an incentive for people in high-risk groups to get a flu shot for the sake of their own health.
• The market equilibrium only accounts for the internal benefits of individuals deciding whether to get vaccine.

• School vaccination laws would require all children entering school to provide proof of vaccine against a variety of diseases.
• Positive benefits for all members of society can be created by internalizing the externality of the requirement.
• The market will be pushed toward the socially optimal number of vaccinations if more people get vaccine early in life.
• In the United States, vaccination rates have been falling for years.
• There are both individual and social benefits to the lower vaccination rate.

• Measles can spread quickly when the vaccine rate is not 100%, as evidenced by the outbreak that spread to six U.S. states, Mexico, and Canada.

• Eco nomic activity that helps third parties can be promoted by the government.
• It can offer a price break to encourage people to get vaccinations.

• Market inefficiencies increase the demand for vaccines, which raises the overall market price.

• Governments give free or reduced cost vaccines to those most at risk from flu.
• The social demand curve shows the benefits of getting the vaccine.

• Consumers are encouraged to internalize the externality of the subsidy.

• Markets don't handle externalities well.
• Too much of a good can be produced by the market with a negative externality.
• In the case of a positive externality, the market produces too little.
• Deadweight loss is created by the market equilibrium.
• The private market is not efficient when positive externalities are present.
• The market equilibrium doesn't maximize the gains for society as a whole.
• The demand curve shifts outward when positive externalities are present.
• The deadweight loss that results from insufficient market demand is eliminated.

• The key characteristics of positive and negative externalities are summarized in Table 7.2.

• Not all externalities warrant cor rective measures.
• Sometimes the size of the externality is not justified by the cost of increased regulations, charges, taxes, or subsidies that might achieve the social optimum.
• The presence of negligible externalities does not mean that the government should intervene in the market.

• The spread of disease is prevented by flu shots.

• Motorists spend more time on the road and citizens spend less time on the road.

• Historic buildings help with pollution.

• Pennsylvania, Texas, West Virginia, and Wyoming are some of the states where energy companies have begun using the process known as frack to extract natural gas.

• Water, chemicals, and sand are injected into rock formations.
• Natural gas is trapped in the rocks and can be released through the process.
• Much of the water and chemical mixture must be thrown away because it came to the surface.

• Controversy has grown about the potential environmental effects of the process as it has expanded.

• People who live near wells worry about the pollutants in the water mixture and their potential to ruin drinking water supplies.
• The drilling of a well is noisy.
• For a few weeks, drilling occurs 24 hours a day.
• Anyone who lives close by is affected by this noise pollution.
• The natural gas has to be moved away from the well.
• Local roads can be damaged by additional truck traffic.

• The areas where it is occurring have seen tremendous economic growth.
• Many people have been employed because of the jobs that have been created.
• As temporary employees move from one area to another, local hotels and restaurants have seen an increase in business.
• As permanent employees take over the operation of a well, housing prices go up, which benefits local homeowners.

• The government doesn't need to force everyone to shower.
• People with bad body odor have every reason to shower, use extra strength deodorant, or use cologne to mask the smell on their own.
• They will be ostracized if they don't avail themselves of these options.
• It is best to leave alone because government regulations to completely eliminate the externality would be quite burdensome.

• There is a divide between the way markets operate and the social optimum.
• Resources can over resources if property rights are not clearly defined.

• Manufacturing firms emit pollutants into the air because no one owns it.

• We need to examine the role of property rights in market efficiency to understand why firms sometimes overlook their actions.
• When we compare situations in which people have property rights, the difference is obvious.
• Private owners have an incentive to keep their property in good repair because they bear the costs of fixing what they own when it breaks or no longer works properly.
• If you own a personal computer, you should treat it with care and deal with any problems as soon as possible.
• If you find that a public computer terminal in a campus lab is malfunctioning, you will most likely ignore the problem and look for another computer that is working.
• Property rights matter because of the difference between solving the problem and ignoring it.

• This right creates an incen that allows for the use, and tives to maintain, protect, and conserve property and to trade with others.

• There is an incentive for car owners to maintain their vehicles.
• The vehicle is safe and reliable because of regular maintenance and repairs.

• There is an incentive for owners to protect their vehicles.
• They use alarm systems, locking doors, and parking in well lit areas to protect their property.

• Car owners can extend the usable life of their cars by limiting the number of miles they drive each year.

• Car owners have an incentive to trade with each other.

• You can do what you want with the car.
• If you decline to sell, you will have to give up $5,000 to keep the item you value at $3,000.
• The owner of private property has an incentive to trade for something better in the market.

• Incentives to maintain, protect, and conserve property help to ensure that owners keep their private property in good shape.
• The fourth incentive, to trade with others, helps to ensure that private property is held by the person with the greatest willingness to pay.

• Ronald Coase argued in 1960 that private property rights can close the gap between internal and social costs.

• Consider an example of two people who are next to each other, one raising cattle and the other wheat.
• The cattle wander onto the neighboring land to eat wheat because neither of the owners built a fence.
• Both parties are to blame for the dilemma.
• He looked at two possible scenarios to arrive at the conclusion.

• The wheat farmer has the right to expect cattle- free fields.
• The cattle rancher is responsible for the damage done to the wheat farmer.
• If the damage is costly and the rancher is responsible, the rancher will build a fence to keep the cattle out.
• The fence makes the rancher pay the full cost of the damage.
• The rancher is more likely to compensate the wheat farmer if the damage to the crop is less than the cost of building a fence.

• The cattle rancher is not responsible for the damages his cattle cause to the wheat farmer.
• The cattle are close to the wheat.

• The wheat farmer is forced to pay the full cost of the damage because of the fence.
• The farmer may accept occasional damage as a lower cost option if it is less than the cost of a fence.

• When the externality is large enough to justify the expense, the externality gets internalize.
• Either the cattle rancher or the wheat farmer will build a fence if the property rights are fully specified.
• The fence will keep the cattle away from the wheat and prevent the destruction of the property.

• The incentive to internalize any externalities is given by the assignment of property rights under the law interested parties will bar.
• It is difficult to correct externalities.

• Private solutions to externality problems are not always possible, implying a role for government in solving complex externality issues.

• Consider the difference between an example of a rancher and a farmer with adjacent land and an example of a community- wide problem such as pollution.
• The parties can bargain with each other at a low cost, which should make a private solution possible.

• The externality is absorbed by a fence.

• Because of the high bargaining costs in the case of pollution, the government may be necessary.

• Most of us imagine a slice of pizza or a jacket when we think of private goods.

• When it is possible to prevent consumers from having production, the terms "private" and "public" are used, but they are not the criterion that economists use to categorize private not paid for it from having and public goods.
• To understand the difference between public and private access.

• Only one person can eat a slice of pizza.

• Consider opening a pizza business.
• The pizzeria knows it can sell pizzas to consumers.
• Consumers are willing to buy pizza because they enjoy it.

• Many of the nation's best fireworks displays, but only a small percentage of difficult to exclude, can be seen by hundreds of thousands of people.

• Consumers can't be forced to pay to watch fireworks, so they may want more of the good.
• fireworks displays and other public goods are underproduced because of the market economy.

• People can get public goods without paying for them.
• Public goods result in market failure.
• Joshua Bell is one of the most famous violinists in the world.

• After giving a concert in Boston for $100 a ticket, he decided to perform in a Pizza is a private good.

• Asking for donations at the subway station in Washington, D.C.

• The music did not need to be purchased to be enjoyed.
• It was nonrival in consumption.

• It is difficult for a street musician to make a living because they can't force people to pay.

• If he draws a large crowd and the music is good, the audience will enjoy $500 worth of music.
• He received a loud round of applause at the end of the performance and then moved to the donation basket.
• When he counts up the contributions, he only finds $30, the actual amount he earned while playing in the Metro.

• Whenever someone gets lic good, a street musician gives a pub to them and they need the audience's help to pay for it.
• Many potential musicians won't pay for it if it's a benefit without a lot of people contributing.

• The event is placed in a hypothetical context.

• Market inefficiencies lower the returns to performing and the private equilibrium amount of street performances is undersupplied in comparison to the social optimum.
• The efficient quantity is not produced when payment cannot be linked to production or consumption.

• There are many examples of a public good.

• National defense is an example of a public good that is subject to a free- rider problem.
• Only the government can provide adequate national defense.

• Society would not be protected because many people wouldn't pay their fair share.
• Defense expenditures are usually funded by tax revenues.
• The free- rider problem is almost eliminated because most people pay taxes.

• National defense, the interstate highway system, and medical and science related research should be provided by the government.
• Public sector provision helps to eliminate the free- rider problem and create a socially optimal level of activity.

• Group work is required in a class.
• The ability to work as a team is a skill that businesses look for in potential employees.
• The free- rider problem can be created by group work in class or the workplace.
• Many groups have one member who doesn't put in the time or effort to complete the project.
• The person knows that he or she will get the benefit of the group grade without paying the full cost.
• You might think that this behavior is lazy or inconsiderate, but it is actually quite rational.
• The free rider is wondering if his or her actions will affect the group's grade.
• If the work raises the group's grade from a B- to a B, the free rider may find it too costly to participate.

• Common- resource goods have characteristics that are excludable.

• Satellite televi is a rival in consumption.
• It is excludable because you have to pay.

• Markets usually provide club goods for customers who don't want to enjoy them.
• The cost of adding customers is low once a satellite television network is in place.
• Firms are motivated to maximize profits, not the number of people they serve, so the market price is higher and the output is lower than what society wants.

• There is a king crab off Alaska.
• The crabs are a rival resource because they can only be caught by one boat crew.
• exclusion is not possible because any boat crew that wants to brave the elements can catch crab.

• The market works well for private goods.
• The market needs a hand in the case of public goods.
• The club and common- resource goods show the tension between the private and public provision of goods and services.
• The four types of goods are summarized in Table 7.3.

• Satellite television is good.

• Alaskan king crab is a good resource.

• Few goods meet the definition of a public good.

• Public parks are usually thought of as meeting the necessary requirements to be a public good.
• The parks are both subject to congestion.
• Most national and state parks require an admission fee.
• Public parks do not meet the definition of a public good.

• There are many examples of private parks that protect and conserve the environment.
• Natural Bridge is a privately owned and operated park in Virginia that preserves a rare natural arch over a small stream.

• Private parks were established before the national park system was established.
• Private parks are not the same as public ones.

• Understanding the four types of goods gives a solid foundation for understanding markets and the government.
• Some of the special challenges that arise in providing nonexcludable goods are considered next.

• Costs are easier to quantify than benefits.
• If a community puts on a Fourth of July celebration, it is important to determine whether the will have to pay for the fireworks and labor involved in setting up the event.

• The costs are known.
• Benefits are hard to quantify.
• Good outweighs the costs.

• The social benefit might be misrepresented in two ways.
• Some residents might claim that the fireworks bring more benefit than they actually do because they want the fireworks to continue.
• The benefit of the fireworks might be overstated by residents who dislike the crowds and noise.
• The social benefit of a fireworks show is hard to measure since there is no way to know how honest people are.

• Because people do not pay to enjoy public goods, and because the government provides them without charging a fee, determining the socially optimal amount takes place through the political system.
• If the populace believes that the elected officials have not done a good job with their analyses, they don't get reelected.

• It's difficult to figure out the social benefit of a fireworks display.

• Many countries don't have strict copy right standards.
• The result is a black market filled with bootlegged copies of media.

• Digital file sharing is so common that you might not be aware of the harm that occurs.
• Free- riding is a form of piracy.
• Every song and movie that is transferred takes away royalties from the original artist or the studio.
• Businesses can't make a fair return on their investments if they violate copyright law.
• Consumers of content don't see it that way.
• Some people think that breaking the copyright is fair game because they own the object in question or bought it from a friend.
• The reality is different.
• The law limits free- riding.
• Content creators receive compensation for their work when their copyrights are fully specified and enforced.
• The amount of music and movies produced will decrease if copyrights are routinely violated.
• Society will suffer in the long run because artists will produce less.

• Think about the relationship between artists and the public as one that needs the other.
• The music you buy or the movie you watch is more of a club good than a public good.
• The good is excludable but nonrival.

• In a pastoral community, a common pasture shared by local herders could be used.
• Herders know that common land is likely to be affected by the depletion of intensively grazed land.

• Each herder has the same incentive to overgraze.
• Poorly designed incentives and the lack of clearly defined private property rights bring about the overgrazing.

• Common ownership can be a recipe for resource depletion and economic disaster.
• Private ownership leads to over use.
• If his property is damaged or destroyed, the owner can seek damages in the court system.
• For common property, joint ownership allows any party to use the resource as he or she sees fit.
• Incentives to use the resource are created by this situation.
• Common property leads to abuse of the resource.

• Consider global warming.
• Increasing amounts of CO2 in the atmosphere are linked to global warming.

• Everyone is to blame for the negative externality.

• The amount of CO2 released and the increase in global warming are larger than optimal because large CO2 emitters only consider the internal costs of their actions.
• The air is being used and degraded.

• Private property rights allow owners to maintain, protect, and conserve their property if someone else values it more than they do.
• The collapse of cod populations off Newfoundland, Canada, in the 1990s is an example of the tragedy of the commons.

• Over the course of three years, cod hauls fell from 200,000 to zero.

• The cod industry has incentives associated with common property.

• The ocean is not owned by anyone.
• Fishing grounds in international waters can't be protected.
• Fishing grounds within territorial waters are problematic because fish do not adhere to political borders.
• It is not possible to maintain the fishing grounds in the same way that one can check the oil in an automobile.
• The grounds are too large and the cod population depends on a number of variables.
• The idea of maintaining a population of cod in a wild environment is impractical.

• Each fishing boat crew wants to maintain a sustainable population of cod.
• Other boats would catch whatever the first boat leaves behind, so it's irrelevant if you conserve on the part of one boat.
• Boats have an incentive to harvest as much cod as they can before another boat does.
• No one has the authority to say how much of a resource can be used.
• Maintaining economic activity at a socially optimal level would require coordination of thousands of vested interests.
• If a socially responsible boat crew limits its catch in order to protect the species, this action does not guarantee that rivals will follow suit.
• Rivals who disregard the socially optimal behavior stand to benefit.

• The incentives we discussed under a system of private ownership do not apply because cod are a common resource.
• Resources are neglected with common property.

• Planning and coordination are required to prevent the tragedy of the commons.
• It was too late to prevent the collapse of Atlantic cod because officials were slow to recognize the problem.

• The collapse of the fish population became an unprecedented disaster for all of Atlantic Canada's fisheries, just as they placed a moratorium on catching northern cod.
• The population of cod dropped to 1%.

• The collapse of cod resulted in the loss of 40,000 jobs and over $300 million in income annually.
• The communities in the affected region were crippled by this outcome.

• The lesson of the northern cod is that Common resources, such as cod, encourage over use.

• King crab populations off the coast of Alaska have performed better than cod thanks to proactive management.
• The fishing season is limited so that populations have time to recover.
• Regulations limit how much fishing boats can catch.
• Adult males are the only ones who are harvested.
• Females and young crabs are necessary for repopulation.
• Without government enforcement, the tragedy of the commons would happen.

• The best way to curb the global commons.

• Carbon pricing acts as an internal cost that must be considered before creating carbon pollution, so this policy encourages parties to internalize the negative externality.

• The idea behind cap and creating a system of emis trade policy is to encourage carbon producers to internalize the externality sions permits that are traded by establishing markets for tradable emissions permits.

• Businesses and individuals can emit a certain amount of carbon each year.
• Companies that produce less carbon emissions can sell permits that they don't use.
• By establishing property rights that control emissions permits, cap and trade causes firms to look for ways to lower emissions.
• Cap and trade policy is a tangible step that reduces free- riding, creates incentives for action, and promotes a socially efficient outcome when it comes to global warming.

• There are issues that need to be overcome to make cap and trade work.
• Cap and trade presumes that nations can agree on and enforce emissions limits, but international agreements have proved difficult to negotiate.
• Without binding international agreements, nations that adopt cap and trade policies will experience higher production costs, while nations that ignore them will benefit.

• There is a vicious cycle of poverty in Haiti.
• Haiti used to be a tropical island with pines and broadleaf trees.
• About 3% of the country has tree cover.
• Shortsighted logging and agricultural practices, demand for charcoal, rapid population growth, and increased competition for land are some of the factors that have contributed to this environmental catastrophe.
• The fertile topsoil layer was washed away because of soil erosion.
• The land was once productive and lush.
• Most of the remaining trees were cut down.
• Not enough food could be produced on this land, which contributed to poverty.

• Haiti is an example of the tragedy of the commons.
• Haiti shares the island of Hispaniola with the Dominican Republic.
• There is a stark difference between the Dominican Republic's lush tropical landscape and the deforested Haitian land.
• In Haiti, the land was a semipublic resource that was abused and subject to the tragedy of the commons.
• Property rights preserved the environment in the Dominican Republic.
• Haiti, seen on the left in this aerial photo, is deforested.
• The Dominican Republic has maintained its vate property rights, which means that the poor are not as poor today.

• One of the best parts of attending a concert is tailgating.
• You enjoy a great time with your friends and take in the action, leaving little to worry about the trash left behind.
• Consider this example of a country artist playing in Pittsburgh.
• The parking lot was trashed.

• A lot of trash was generated because tailgaters brought a lot of things to party.
• conscientious individuals don't show the same concern for public property The parking lot is a public space and subject to tragedy.
• No one person can keep the lot clean.
• When 50,000 people fill a stadium at one time, the effects of litter can be seen.

• Many people waste their money buying things they don't need.
• $6,000 in lost value is what we could do with our wallet and environment.
• Let someone else take that favor by buying used.
• Some customers buy a used vehicle.

• The hardware store is where you are going.
• hammers and shovels are designed to last.

Would you buy something like that?

• If you are comfortable life of a product, which helps maximize the risk, you should look for a local pawn value society gets from its resources.
• Before buying, be sure to get appraisal examples that show the benefit of private.

• The enthusiasts can maximize est equipment by buying lat products.
• When they sell them, they switch to the value when they tire of it.

• You can buy used and pay less.
• You will have to wait.
• The good news is that you won't find out that your new system isn't as exciting as advertised.
• That is how you find a good deal.

• Buying used can save you thousands of dollars, as new cars can lose 20% of their value in the first year.

• It's tempting to believe that the appropriate response to pollution is always to eliminate it.
• There are trade offs.
• Business activity goes down when pollution is taxed or regulated.

• It's possible to eliminate too much pollution, forcing businesses to shut down, creating undesirably high prices for anything from groceries to gasoline to electronics, and all in all creating an enormous deadweight loss to society.

• When you think about pollution like an environmental economist, you realize that it would create benefits and costs.
• Most people wouldn't have enough "green" in their wallet if there was no pollution in the environment.
• The cost of attaining zero pollution outweighs the benefit, so the goal for pollution isn't zero.

• Externali ties and public goods are two types of market failure.
• The market doesn't provide the socially optimal amount of good or service when externalities and public goods exist.
• Businesses can be encouraged to internalize externalities.
• The process can be aided by taxes and regulations that force producers to account for the negative externalities that they create.
• The production of activities that generate positive externalities can be stimulated by subsidies.

• Public goods are a challenge for the market.
• The underproduction of goods that are nonrival and nonexcludable is caused by free- riding.
• One way to eliminate free- riding is through taxation or regulation.
• There is a second problem when goods are notxcludable.
• The tragedy of the commons can be caused by this condition.

• There is an externality when an internal cost and a social cost differ.
• Negative or positive externalities can be experienced by third parties.
• Market failure is when there is an inefficient allocation of resources.

• Internal costs and external costs are referred to as social costs.

• Government can restore the social optimum by discouraging economic activity that harms third parties.

• The social optimum can be restored by encouraging economic activity that benefits third parties.

• Decision makers have to pay for the externality created by their participation in the market.

• Private goods make it possible for owners to maintain, protect, and conserve their property and also to trade it with others.

• There are two characteristics of a public good.
• The underproduction of the good in the market is a result of public goods giving rise to the free rider problem.
• Market failure is caused by public goods.

• Cost benefit analysis is used by economists to determine whether the benefits of providing a particular good outweigh the costs.

• Under a system of common property, the incentive structure is neglected.

• Give a graph.

• Explain how they differ from incentives.

• An example of a nonrival can be given.

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• Explain why you and your friends volunteer to plant wild.

• A new bridge is the subject of late night road construction.

• The government imposes a $10 tax on waking up before 10 a.m. and most on the sale of every unit to correct for the social work jobs after 3 p.m., because the students at a crowded university have noise.
• The demand for classes between internalizes the externality of the tax.
• Blown Away Manufacturing sells its hours before 10 a.m. and 3 p.m., and before and after tax.
• To make a difference for $100.
• The university has a limited amount of consumer price for leaf blowers that goes up to $105 after the tax is in place.

• Explain the impact of the tax on students who can't take classes because of the number of leaf blowers sold.

• The hiring of more faculty is not an option.

• The net price is received after the peak class hours.

• Two people are roommates.
• One likes to submit an environmental impact study before he plays Modern Warfare with his friends.
• The other likes to go to bed early.
• If Coase is correct, the wants to build a new shopping center on roommates have an incentive to solve the noise issue themselves.
• There is a toad at that name.
• If approved by the local eliminate, the least two solutions will internalize, or shopping complex.

• Two companies, Toxic Waste Management and the planning commission want the construction of Sludge Industries to be stopped.

• Every day, each firm dumps 1,000 gallons of gunk into the local commu lake.
• The lake has nity, but it also wants to be lost its clarity and the fish are dying.
• A member of the commis dents wants to see the lake restored.
• Toxic sion suggests that the Waste's production process is dependent on toads.
• She described the relocation process as being able to dump the gunk into the lake.
• The developer would have to pay Toxic Waste $10 per gallon to clean the mall and would have to create 10 acres of artificial greenery.
• Will this cost $2 per gallon?

• The company should be allowed to discharge pollutants.

• From ages it causes, the company should be held liable for dam economics.

• The company should stop doing business.

• The pollution should be negotiated by all parties.

• It costs Toxic Waste $10 per gallon to clean up.
• The fee for Toxic tity888-607-888-607-888-607-888-607-888-607-s888-607-s888-607-s888-607-s888-607-s888-607-s888-607-s888-607-s888-607-s888-607-s888-607-s888-607-s888-607-s888-607-s888-607-s888-607-s are more efficient for Toxic tity888-607-s888-607-s888-607-s888-607- Making allows Toxic to dump an additional 500 gal the congestion charge dynamic and saves the company $5,000 the price by the hour.
• In order to pay less, Sludge could decide not to have most popular class times.

• 2 p.m. would have the highest fee for classes between 11 a.m. and Sludge $2 per gallon to clean up its gunk.
• If it sells its permits between 10 and 11 a.m. and between 2 and Toxic, it would be slightly discounted.
• A profit is a class.
• Toxic is cheaper between 9 and 10 a.m. and Sludge is cheaper between 3 and 4 a.m.

• Thinking like an economist requires one to be the cheapest.
• The university would be able to calculate the costs of every policy by altering the price of differ.
• The perspective to offer classes at less popular times and fill allows environmental economists to assess them up regularly, so that they can use a particular policy to create more resources.

• Toxic Waste will argue that if the local government cuts the legal perspective that causes emissions in half for each firm, it will cut its pollution by 500 gallons at a cost of zero.

• An environmentalist sees policy as a way for Sludge Industries to cut its waste by 500 solutions.
• At $2 per gallon, the cost is $1,000.

• The total cost to both firms in meeting the environment is more than the emissions standard and therefore advocates for policies of $6,000.