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12%-18% of AP Test
The private market FAILS to produce the socially optimal quantity
Marginal social benefit > marginal social cost
Positive externalities (too little)-a party EXTERNAL to the transaction can benefit. Examples: Education & immunizations.
Other terms for positive externality-spillover benefits, external benefits and underallocation.
Correct the externality--Per-unit subsidy the consumer and/or the producer.
Negative externalities (too much)-a party EXTERNAL to the the transaction it negatively impacted or incurs a cost. Example: pollution.
Other terms for negative externality-spillover costs, external costs and overallocation.
Correct the negative externality--per-unit tax, regulate, or cap and trade the consumer and/or the producer.
Public goods
Public versus private goods
Public goods: Non-Rival and Non-Excludable. Example: Military, streetlights, and public parks.
Private goods: Excludable and Rival. Example: Haircut & eating a sandwich
Artificially Scarce (toll goods): Non-Rival & Excludable: Amusement park & movies
Common Good: Non-excludable and rival: Deadliest Catch (seafood).
Provision of public goods
Public policy to promote competition
Antitrust policy: Department of Justice Anti-Trust Division to review market concentration.
Regulation: Price and/or quantity regulation
Income distribution
Equity-Progressive income taxes to help redistribute income and reduce income inequality.
2017 Income Tax Brackets:
Sources of income inequality
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