THE ECONOMICS OF THE PUBLIC SECTOR

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THE ECONOMICS OF THE PUBLIC SECTOR
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THE ECONOMICS OF THE PUBLIC SECTOR 4 THE ECONOMICS OF THE PUBLIC SECTOR

10 Externalities

Figure 1 The Market for Aluminium Price of Aluminum Supply (private cost) Demand (private value) QMARKET Equilibrium Quantity of Aluminum Copyright © 2010 South-Western

Figure 2 Pollution and the Social Optimum Price of Social cost Aluminum Cost of pollution Demand (private value) Supply (private cost) Optimum QOPTIMUM Equilibrium QMARKET Quantity of Aluminum Copyright © 2010 South-Western

Figure 3 Education and the Social Optimum Price of Education Social value Supply (private cost) Demand (private value) QOPTIMUM QMARKET Quantity of Education Copyright © 2010 South-Western

Figure 4 The Equivalence of Pigovian Taxes and Pollution Permits (a) Pigovian Tax Price of Pollution Demand for pollution rights P Pigovian tax Q 1. A Pigovian tax sets the price of pollution . . . Quantity of 2. . . . which, together with the demand curve, determines the quantity of pollution. Pollution Copyright © 2010 South-Western

Figure 4 The Equivalence of Pigovian Taxes and Pollution Permits (b) Pollution Permits Price of Q Supply of pollution permits Pollution Demand for pollution rights P 2. . . . which, together with the demand curve, determines the price of pollution. Quantity of 1. Pollution permits set the quantity of pollution . . . Pollution Copyright © 2010 South-Western

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