michael
/
notes-archive
1
0
Fork 0
Code Issues Pull Requests Packages Projects Releases Wiki Activity
notes-archive/notes/AP Microeconomics/Notes 6f2083c54c4f4d288e489.../Unit 6 Market Failure and t...

684 lines
73 KiB
HTML
Raw Normal View History

Add notes from senior year
2022-08-14 14:00:25 -04:00
<html><head><meta http-equiv="Content-Type" content="text/html; charset=utf-8"/><title>Unit 6: Market Failure and the Role of Government</title><style>
/* cspell:disable-file */
/* webkit printing magic: print all background colors */
html {
-webkit-print-color-adjust: exact;
}
* {
box-sizing: border-box;
-webkit-print-color-adjust: exact;
}
html,
body {
margin: 0;
padding: 0;
}
@media only screen {
body {
margin: 2em auto;
max-width: 900px;
color: rgb(55, 53, 47);
}
}
body {
line-height: 1.5;
white-space: pre-wrap;
}
a,
a.visited {
color: inherit;
text-decoration: underline;
}
.pdf-relative-link-path {
font-size: 80%;
color: #444;
}
h1,
h2,
h3 {
letter-spacing: -0.01em;
line-height: 1.2;
font-weight: 600;
margin-bottom: 0;
}
.page-title {
font-size: 2.5rem;
font-weight: 700;
margin-top: 0;
margin-bottom: 0.75em;
}
h1 {
font-size: 1.875rem;
margin-top: 1.875rem;
}
h2 {
font-size: 1.5rem;
margin-top: 1.5rem;
}
h3 {
font-size: 1.25rem;
margin-top: 1.25rem;
}
.source {
border: 1px solid #ddd;
border-radius: 3px;
padding: 1.5em;
word-break: break-all;
}
.callout {
border-radius: 3px;
padding: 1rem;
}
figure {
margin: 1.25em 0;
page-break-inside: avoid;
}
figcaption {
opacity: 0.5;
font-size: 85%;
margin-top: 0.5em;
}
mark {
background-color: transparent;
}
.indented {
padding-left: 1.5em;
}
hr {
background: transparent;
display: block;
width: 100%;
height: 1px;
visibility: visible;
border: none;
border-bottom: 1px solid rgba(55, 53, 47, 0.09);
}
img {
max-width: 100%;
}
@media only print {
img {
max-height: 100vh;
object-fit: contain;
}
}
@page {
margin: 1in;
}
.collection-content {
font-size: 0.875rem;
}
.column-list {
display: flex;
justify-content: space-between;
}
.column {
padding: 0 1em;
}
.column:first-child {
padding-left: 0;
}
.column:last-child {
padding-right: 0;
}
.table_of_contents-item {
display: block;
font-size: 0.875rem;
line-height: 1.3;
padding: 0.125rem;
}
.table_of_contents-indent-1 {
margin-left: 1.5rem;
}
.table_of_contents-indent-2 {
margin-left: 3rem;
}
.table_of_contents-indent-3 {
margin-left: 4.5rem;
}
.table_of_contents-link {
text-decoration: none;
opacity: 0.7;
border-bottom: 1px solid rgba(55, 53, 47, 0.18);
}
table,
th,
td {
border: 1px solid rgba(55, 53, 47, 0.09);
border-collapse: collapse;
}
table {
border-left: none;
border-right: none;
}
th,
td {
font-weight: normal;
padding: 0.25em 0.5em;
line-height: 1.5;
min-height: 1.5em;
text-align: left;
}
th {
color: rgba(55, 53, 47, 0.6);
}
ol,
ul {
margin: 0;
margin-block-start: 0.6em;
margin-block-end: 0.6em;
}
li > ol:first-child,
li > ul:first-child {
margin-block-start: 0.6em;
}
ul > li {
list-style: disc;
}
ul.to-do-list {
text-indent: -1.7em;
}
ul.to-do-list > li {
list-style: none;
}
.to-do-children-checked {
text-decoration: line-through;
opacity: 0.375;
}
ul.toggle > li {
list-style: none;
}
ul {
padding-inline-start: 1.7em;
}
ul > li {
padding-left: 0.1em;
}
ol {
padding-inline-start: 1.6em;
}
ol > li {
padding-left: 0.2em;
}
.mono ol {
padding-inline-start: 2em;
}
.mono ol > li {
text-indent: -0.4em;
}
.toggle {
padding-inline-start: 0em;
list-style-type: none;
}
/* Indent toggle children */
.toggle > li > details {
padding-left: 1.7em;
}
.toggle > li > details > summary {
margin-left: -1.1em;
}
.selected-value {
display: inline-block;
padding: 0 0.5em;
background: rgba(206, 205, 202, 0.5);
border-radius: 3px;
margin-right: 0.5em;
margin-top: 0.3em;
margin-bottom: 0.3em;
white-space: nowrap;
}
.collection-title {
display: inline-block;
margin-right: 1em;
}
.simple-table {
margin-top: 1em;
font-size: 0.875rem;
empty-cells: show;
}
.simple-table td {
height: 29px;
min-width: 120px;
}
.simple-table th {
height: 29px;
min-width: 120px;
}
.simple-table-header-color {
background: rgb(247, 246, 243);
color: black;
}
.simple-table-header {
font-weight: 500;
}
time {
opacity: 0.5;
}
.icon {
display: inline-block;
max-width: 1.2em;
max-height: 1.2em;
text-decoration: none;
vertical-align: text-bottom;
margin-right: 0.5em;
}
img.icon {
border-radius: 3px;
}
.user-icon {
width: 1.5em;
height: 1.5em;
border-radius: 100%;
margin-right: 0.5rem;
}
.user-icon-inner {
font-size: 0.8em;
}
.text-icon {
border: 1px solid #000;
text-align: center;
}
.page-cover-image {
display: block;
object-fit: cover;
width: 100%;
max-height: 30vh;
}
.page-header-icon {
font-size: 3rem;
margin-bottom: 1rem;
}
.page-header-icon-with-cover {
margin-top: -0.72em;
margin-left: 0.07em;
}
.page-header-icon img {
border-radius: 3px;
}
.link-to-page {
margin: 1em 0;
padding: 0;
border: none;
font-weight: 500;
}
p > .user {
opacity: 0.5;
}
td > .user,
td > time {
white-space: nowrap;
}
input[type="checkbox"] {
transform: scale(1.5);
margin-right: 0.6em;
vertical-align: middle;
}
p {
margin-top: 0.5em;
margin-bottom: 0.5em;
}
.image {
border: none;
margin: 1.5em 0;
padding: 0;
border-radius: 0;
text-align: center;
}
.code,
code {
background: rgba(135, 131, 120, 0.15);
border-radius: 3px;
padding: 0.2em 0.4em;
border-radius: 3px;
font-size: 85%;
tab-size: 2;
}
code {
color: #eb5757;
}
.code {
padding: 1.5em 1em;
}
.code-wrap {
white-space: pre-wrap;
word-break: break-all;
}
.code > code {
background: none;
padding: 0;
font-size: 100%;
color: inherit;
}
blockquote {
font-size: 1.25em;
margin: 1em 0;
padding-left: 1em;
border-left: 3px solid rgb(55, 53, 47);
}
.bookmark {
text-decoration: none;
max-height: 8em;
padding: 0;
display: flex;
width: 100%;
align-items: stretch;
}
.bookmark-title {
font-size: 0.85em;
overflow: hidden;
text-overflow: ellipsis;
height: 1.75em;
white-space: nowrap;
}
.bookmark-text {
display: flex;
flex-direction: column;
}
.bookmark-info {
flex: 4 1 180px;
padding: 12px 14px 14px;
display: flex;
flex-direction: column;
justify-content: space-between;
}
.bookmark-image {
width: 33%;
flex: 1 1 180px;
display: block;
position: relative;
object-fit: cover;
border-radius: 1px;
}
.bookmark-description {
color: rgba(55, 53, 47, 0.6);
font-size: 0.75em;
overflow: hidden;
max-height: 4.5em;
word-break: break-word;
}
.bookmark-href {
font-size: 0.75em;
margin-top: 0.25em;
}
.sans { font-family: ui-sans-serif, -apple-system, BlinkMacSystemFont, "Segoe UI", Helvetica, "Apple Color Emoji", Arial, sans-serif, "Segoe UI Emoji", "Segoe UI Symbol"; }
.code { font-family: "SFMono-Regular", Menlo, Consolas, "PT Mono", "Liberation Mono", Courier, monospace; }
.serif { font-family: Lyon-Text, Georgia, ui-serif, serif; }
.mono { font-family: iawriter-mono, Nitti, Menlo, Courier, monospace; }
.pdf .sans { font-family: Inter, ui-sans-serif, -apple-system, BlinkMacSystemFont, "Segoe UI", Helvetica, "Apple Color Emoji", Arial, sans-serif, "Segoe UI Emoji", "Segoe UI Symbol", 'Twemoji', 'Noto Color Emoji', 'Noto Sans CJK JP'; }
.pdf:lang(zh-CN) .sans { font-family: Inter, ui-sans-serif, -apple-system, BlinkMacSystemFont, "Segoe UI", Helvetica, "Apple Color Emoji", Arial, sans-serif, "Segoe UI Emoji", "Segoe UI Symbol", 'Twemoji', 'Noto Color Emoji', 'Noto Sans CJK SC'; }
.pdf:lang(zh-TW) .sans { font-family: Inter, ui-sans-serif, -apple-system, BlinkMacSystemFont, "Segoe UI", Helvetica, "Apple Color Emoji", Arial, sans-serif, "Segoe UI Emoji", "Segoe UI Symbol", 'Twemoji', 'Noto Color Emoji', 'Noto Sans CJK TC'; }
.pdf:lang(ko-KR) .sans { font-family: Inter, ui-sans-serif, -apple-system, BlinkMacSystemFont, "Segoe UI", Helvetica, "Apple Color Emoji", Arial, sans-serif, "Segoe UI Emoji", "Segoe UI Symbol", 'Twemoji', 'Noto Color Emoji', 'Noto Sans CJK KR'; }
.pdf .code { font-family: Source Code Pro, "SFMono-Regular", Menlo, Consolas, "PT Mono", "Liberation Mono", Courier, monospace, 'Twemoji', 'Noto Color Emoji', 'Noto Sans Mono CJK JP'; }
.pdf:lang(zh-CN) .code { font-family: Source Code Pro, "SFMono-Regular", Menlo, Consolas, "PT Mono", "Liberation Mono", Courier, monospace, 'Twemoji', 'Noto Color Emoji', 'Noto Sans Mono CJK SC'; }
.pdf:lang(zh-TW) .code { font-family: Source Code Pro, "SFMono-Regular", Menlo, Consolas, "PT Mono", "Liberation Mono", Courier, monospace, 'Twemoji', 'Noto Color Emoji', 'Noto Sans Mono CJK TC'; }
.pdf:lang(ko-KR) .code { font-family: Source Code Pro, "SFMono-Regular", Menlo, Consolas, "PT Mono", "Liberation Mono", Courier, monospace, 'Twemoji', 'Noto Color Emoji', 'Noto Sans Mono CJK KR'; }
.pdf .serif { font-family: PT Serif, Lyon-Text, Georgia, ui-serif, serif, 'Twemoji', 'Noto Color Emoji', 'Noto Serif CJK JP'; }
.pdf:lang(zh-CN) .serif { font-family: PT Serif, Lyon-Text, Georgia, ui-serif, serif, 'Twemoji', 'Noto Color Emoji', 'Noto Serif CJK SC'; }
.pdf:lang(zh-TW) .serif { font-family: PT Serif, Lyon-Text, Georgia, ui-serif, serif, 'Twemoji', 'Noto Color Emoji', 'Noto Serif CJK TC'; }
.pdf:lang(ko-KR) .serif { font-family: PT Serif, Lyon-Text, Georgia, ui-serif, serif, 'Twemoji', 'Noto Color Emoji', 'Noto Serif CJK KR'; }
.pdf .mono { font-family: PT Mono, iawriter-mono, Nitti, Menlo, Courier, monospace, 'Twemoji', 'Noto Color Emoji', 'Noto Sans Mono CJK JP'; }
.pdf:lang(zh-CN) .mono { font-family: PT Mono, iawriter-mono, Nitti, Menlo, Courier, monospace, 'Twemoji', 'Noto Color Emoji', 'Noto Sans Mono CJK SC'; }
.pdf:lang(zh-TW) .mono { font-family: PT Mono, iawriter-mono, Nitti, Menlo, Courier, monospace, 'Twemoji', 'Noto Color Emoji', 'Noto Sans Mono CJK TC'; }
.pdf:lang(ko-KR) .mono { font-family: PT Mono, iawriter-mono, Nitti, Menlo, Courier, monospace, 'Twemoji', 'Noto Color Emoji', 'Noto Sans Mono CJK KR'; }
.highlight-default {
color: rgba(55, 53, 47, 1);
}
.highlight-gray {
color: rgba(120, 119, 116, 1);
fill: rgba(120, 119, 116, 1);
}
.highlight-brown {
color: rgba(159, 107, 83, 1);
fill: rgba(159, 107, 83, 1);
}
.highlight-orange {
color: rgba(217, 115, 13, 1);
fill: rgba(217, 115, 13, 1);
}
.highlight-yellow {
color: rgba(203, 145, 47, 1);
fill: rgba(203, 145, 47, 1);
}
.highlight-teal {
color: rgba(68, 131, 97, 1);
fill: rgba(68, 131, 97, 1);
}
.highlight-blue {
color: rgba(51, 126, 169, 1);
fill: rgba(51, 126, 169, 1);
}
.highlight-purple {
color: rgba(144, 101, 176, 1);
fill: rgba(144, 101, 176, 1);
}
.highlight-pink {
color: rgba(193, 76, 138, 1);
fill: rgba(193, 76, 138, 1);
}
.highlight-red {
color: rgba(212, 76, 71, 1);
fill: rgba(212, 76, 71, 1);
}
.highlight-gray_background {
background: rgba(241, 241, 239, 1);
}
.highlight-brown_background {
background: rgba(244, 238, 238, 1);
}
.highlight-orange_background {
background: rgba(251, 236, 221, 1);
}
.highlight-yellow_background {
background: rgba(251, 243, 219, 1);
}
.highlight-teal_background {
background: rgba(237, 243, 236, 1);
}
.highlight-blue_background {
background: rgba(231, 243, 248, 1);
}
.highlight-purple_background {
background: rgba(244, 240, 247, 0.8);
}
.highlight-pink_background {
background: rgba(249, 238, 243, 0.8);
}
.highlight-red_background {
background: rgba(253, 235, 236, 1);
}
.block-color-default {
color: inherit;
fill: inherit;
}
.block-color-gray {
color: rgba(120, 119, 116, 1);
fill: rgba(120, 119, 116, 1);
}
.block-color-brown {
color: rgba(159, 107, 83, 1);
fill: rgba(159, 107, 83, 1);
}
.block-color-orange {
color: rgba(217, 115, 13, 1);
fill: rgba(217, 115, 13, 1);
}
.block-color-yellow {
color: rgba(203, 145, 47, 1);
fill: rgba(203, 145, 47, 1);
}
.block-color-teal {
color: rgba(68, 131, 97, 1);
fill: rgba(68, 131, 97, 1);
}
.block-color-blue {
color: rgba(51, 126, 169, 1);
fill: rgba(51, 126, 169, 1);
}
.block-color-purple {
color: rgba(144, 101, 176, 1);
fill: rgba(144, 101, 176, 1);
}
.block-color-pink {
color: rgba(193, 76, 138, 1);
fill: rgba(193, 76, 138, 1);
}
.block-color-red {
color: rgba(212, 76, 71, 1);
fill: rgba(212, 76, 71, 1);
}
.block-color-gray_background {
background: rgba(241, 241, 239, 1);
}
.block-color-brown_background {
background: rgba(244, 238, 238, 1);
}
.block-color-orange_background {
background: rgba(251, 236, 221, 1);
}
.block-color-yellow_background {
background: rgba(251, 243, 219, 1);
}
.block-color-teal_background {
background: rgba(237, 243, 236, 1);
}
.block-color-blue_background {
background: rgba(231, 243, 248, 1);
}
.block-color-purple_background {
background: rgba(244, 240, 247, 0.8);
}
.block-color-pink_background {
background: rgba(249, 238, 243, 0.8);
}
.block-color-red_background {
background: rgba(253, 235, 236, 1);
}
.select-value-color-pink { background-color: rgba(245, 224, 233, 1); }
.select-value-color-purple { background-color: rgba(232, 222, 238, 1); }
.select-value-color-green { background-color: rgba(219, 237, 219, 1); }
.select-value-color-gray { background-color: rgba(227, 226, 224, 1); }
.select-value-color-opaquegray { background-color: rgba(255, 255, 255, 0.0375); }
.select-value-color-orange { background-color: rgba(250, 222, 201, 1); }
.select-value-color-brown { background-color: rgba(238, 224, 218, 1); }
.select-value-color-red { background-color: rgba(255, 226, 221, 1); }
.select-value-color-yellow { background-color: rgba(253, 236, 200, 1); }
.select-value-color-blue { background-color: rgba(211, 229, 239, 1); }
.checkbox {
display: inline-flex;
vertical-align: text-bottom;
width: 16;
height: 16;
background-size: 16px;
margin-left: 2px;
margin-right: 5px;
}
.checkbox-on {
background-image: url("data:image/svg+xml;charset=UTF-8,%3Csvg%20width%3D%2216%22%20height%3D%2216%22%20viewBox%3D%220%200%2016%2016%22%20fill%3D%22none%22%20xmlns%3D%22http%3A%2F%2Fwww.w3.org%2F2000%2Fsvg%22%3E%0A%3Crect%20width%3D%2216%22%20height%3D%2216%22%20fill%3D%22%2358A9D7%22%2F%3E%0A%3Cpath%20d%3D%22M6.71429%2012.2852L14%204.9995L12.7143%203.71436L6.71429%209.71378L3.28571%206.2831L2%207.57092L6.71429%2012.2852Z%22%20fill%3D%22white%22%2F%3E%0A%3C%2Fsvg%3E");
}
.checkbox-off {
background-image: url("data:image/svg+xml;charset=UTF-8,%3Csvg%20width%3D%2216%22%20height%3D%2216%22%20viewBox%3D%220%200%2016%2016%22%20fill%3D%22none%22%20xmlns%3D%22http%3A%2F%2Fwww.w3.org%2F2000%2Fsvg%22%3E%0A%3Crect%20x%3D%220.75%22%20y%3D%220.75%22%20width%3D%2214.5%22%20height%3D%2214.5%22%20fill%3D%22white%22%20stroke%3D%22%2336352F%22%20stroke-width%3D%221.5%22%2F%3E%0A%3C%2Fsvg%3E");
}
</style></head><body><article id="b1f7f55c-1382-43c2-8e22-e3f27257c121" class="page sans"><header><h1 class="page-title">Unit 6: Market Failure and the Role of Government</h1><table class="properties"><tbody><tr class="property-row property-row-created_time"><th><span class="icon property-icon"><svg viewBox="0 0 14 14" style="width:14px;height:14px;display:block;fill:rgba(55, 53, 47, 0.45);flex-shrink:0;-webkit-backface-visibility:hidden" class="typesCreatedAt"><path d="M7.01356 14.0001C8.8042 14.0001 10.5958 13.3107 11.9575 11.9324C14.681 9.21201 14.6808 4.7603 11.9571 2.04013C9.23336 -0.680043 4.77573 -0.680043 2.05199 2.04013C0.727519 3.36277 0 5.13301 0 6.99553C0 8.8764 0.727811 10.6285 2.05199 11.9509C3.43207 13.3106 5.22243 14.0001 7.01356 14.0001ZM3.72947 7.00914V8.461V8.65543H3.92382H5.34563H8.2794H8.4738V8.461V5.52541V3.37947V3.18502H8.2794H6.82747H6.63307V3.37947V6.81467H3.92382H3.72947V7.00914ZM1.83985 6.99553C1.83985 5.61698 2.38099 4.32597 3.36061 3.3477C5.36746 1.34337 8.64803 1.34062 10.6585 3.33944C10.6613 3.34219 10.6639 3.34494 10.6668 3.3477C12.676 5.3546 12.6763 8.63642 10.6668 10.6434C8.65705 12.6504 5.37031 12.6504 3.36061 10.6434C2.38099 9.66506 1.83985 8.37408 1.83985 6.99553Z"></path></svg></span>Created</th><td><time>@March 16, 2022 8:45 AM</time></td></tr><tr class="property-row property-row-multi_select"><th><span class="icon property-icon"><svg viewBox="0 0 14 14" style="width:14px;height:14px;display:block;fill:rgba(55, 53, 47, 0.45);flex-shrink:0;-webkit-backface-visibility:hidden" class="typesMultipleSelect"><path d="M4,3 C4,2.447715 4.447715,2 5,2 L12,2 C12.5523,2 13,2.447716 13,3 C13,3.55228 12.5523,4 12,4 L5,4 C4.447715,4 4,3.55228 4,3 Z M4,7 C4,6.447715 4.447715,6 5,6 L12,6 C12.5523,6 13,6.447716 13,7 C13,7.55228 12.5523,8 12,8 L5,8 C4.447715,8 4,7.55228 4,7 Z M4,11 C4,10.447715 4.447715,10 5,10 L12,10 C12.5523,10 13,10.447716 13,11 C13,11.55228 12.5523,12 12,12 L5,12 C4.447715,12 4,11.55228 4,11 Z M2,4 C1.44771525,4 1,3.55228475 1,3 C1,2.44771525 1.44771525,2 2,2 C2.55228475,2 3,2.44771525 3,3 C3,3.55228475 2.55228475,4 2,4 Z M2,8 C1.44771525,8 1,7.55228475 1,7 C1,6.44771525 1.44771525,6 2,6 C2.55228475,6 3,6.44771525 3,7 C3,7.55228475 2.55228475,8 2,8 Z M2,12 C1.44771525,12 1,11.5522847 1,11 C1,10.4477153 1.44771525,10 2,10 C2.55228475,10 3,10.4477153 3,11 C3,11.5522847 2.55228475,12 2,12 Z"></path></svg></span>Tags</th><td><span class="selected-value select-value-color-orange">In Class</span></td></tr></tbody></table></header><div class="page-body"><h1 id="029ba319-4d95-4322-9ad6-cf570c3e5690" class="">6.1 - <strong>Socially Efficient and Inefficient Market Outcomes</strong></h1><h2 id="14fcc575-4495-4c51-8935-ad21865d1695" class="">Definitions</h2><ul id="9896a769-9ac6-469c-aa53-ed24b0ba9279" class="bulleted-list"><li style="list-style-type:disc"><strong>Market Failures</strong>
A situation in which the free-market system fails to satisfy society’s wants. (When the invisible hand doesn’t work)</li></ul><ul id="5f9bc85c-957a-4da9-9e82-b03ce7f9e2a4" class="bulleted-list"><li style="list-style-type:disc"><strong>Social Efficiency</strong>
This is the optimal distribution of resources in society, taking into account all external costs and benefits as well as internal costs and benefits. Occurs where <strong>Marginal Social Benefit</strong> (MSB) = <strong>Marginal Social Costs</strong> (MSC).</li></ul><ul id="649f58da-0328-4e34-94c0-d0f6e09e1cfe" class="bulleted-list"><li style="list-style-type:disc"><strong>Marginal Social Benefit (MSB)</strong>
The additional benefit received by all members of society due to the consumption of an additional unit of a good or service.<ul id="1e83b345-b4ef-4486-83c8-f9df102f8de5" class="bulleted-list"><li style="list-style-type:circle"><style>@import url('https://cdnjs.cloudflare.com/ajax/libs/KaTeX/0.13.2/katex.min.css')</style><span data-token-index="0" contenteditable="false" class="notion-text-equation-token" style="user-select:all;-webkit-user-select:all;-moz-user-select:all"><span></span><span><span class="katex"><span class="katex-mathml"><math xmlns="http://www.w3.org/1998/Math/MathML"><semantics><mrow><mtext>Social benefit</mtext><mo>=</mo><mtext>private benefit</mtext><mo>+</mo><mtext>external benefit</mtext></mrow><annotation encoding="application/x-tex">\textrm{Social benefit} = \textrm{private benefit} + \textrm{external benefit}</annotation></semantics></math></span><span class="katex-html" aria-hidden="true"><span class="base"><span class="strut" style="height:0.69444em;vertical-align:0em;"></span><span class="mord text"><span class="mord textrm">Social benefit</span></span><span class="mspace" style="margin-right:0.2777777777777778em;"></span><span class="mrel">=</span><span class="mspace" style="margin-right:0.2777777777777778em;"></span></span><span class="base"><span class="strut" style="height:0.8888799999999999em;vertical-align:-0.19444em;"></span><span class="mord text"><span class="mord textrm">private benefit</span></span><span class="mspace" style="margin-right:0.2222222222222222em;"></span><span class="mbin">+</span><span class="mspace" style="margin-right:0.2222222222222222em;"></span></span><span class="base"><span class="strut" style="height:0.69444em;vertical-align:0em;"></span><span class="mord text"><span class="mord textrm">external benefit</span></span></span></span></span></span><span></span></span></li></ul></li></ul><ul id="7f1c1e4e-22f3-484e-8d9e-2e2b94337505" class="bulleted-list"><li style="list-style-type:disc"><strong>Marginal Social Cost (MSC)</strong>
The additional cost incurred by all members of society due to the consumption of an additional unit of a good or service<ul id="aa2e20ce-4a1b-4ba4-9a44-adcb1609305b" class="bulleted-list"><li style="list-style-type:circle"><style>@import url('https://cdnjs.cloudflare.com/ajax/libs/KaTeX/0.13.2/katex.min.css')</style><span data-token-index="0" contenteditable="false" class="notion-text-equation-token" style="user-select:all;-webkit-user-select:all;-moz-user-select:all"><span></span><span><span class="katex"><span class="katex-mathml"><math xmlns="http://www.w3.org/1998/Math/MathML"><semantics><mrow><mtext>Social cost</mtext><mo>=</mo><mtext>private cost</mtext><mo>+</mo><mtext>external cost</mtext></mrow><annotation encoding="application/x-tex">\textrm{Social cost} = \textrm{private cost} + \textrm{external cost}</annotation></semantics></math></span><span class="katex-html" aria-hidden="true"><span class="base"><span class="strut" style="height:0.69444em;vertical-align:0em;"></span><span class="mord text"><span class="mord textrm">Social cost</span></span><span class="mspace" style="margin-right:0.2777777777777778em;"></span><span class="mrel">=</span><span class="mspace" style="margin-right:0.2777777777777778em;"></span></span><span class="base"><span class="strut" style="height:0.8623000000000001em;vertical-align:-0.19444em;"></span><span class="mord text"><span class="mord textrm">private cost</span></span><span class="mspace" style="margin-right:0.2222222222222222em;"></span><span class="mbin">+</span><span class="mspace" style="margin-right:0.2222222222222222em;"></span></span><span class="base"><span class="strut" style="height:0.69444em;vertical-align:0em;"></span><span class="mord text"><span class="mord textrm">external cost</span></span></span></span></span></span><span></span></span></li></ul></li></ul><ul id="70e08961-b5f9-4035-af36-d917e0856cd4" class="bulleted-list"><li style="list-style-type:disc"><strong>Pareto Improvement</strong>
When at least one individual becomes better off without anyone becoming worse off.</li></ul><ul id="ec192e6c-95a3-472c-b46a-880eea8eda9d" class="bulleted-list"><li style="list-style-type:disc"><strong>Pareto Efficiency</strong>
The idea that there is a point where it is impossible to make anyone better off without making someone worse off. Occurs when an economy is operating on a simple production possibility frontier, it is not possible to increase output of goods without reducing output of services.</li></ul><h2 id="5ed49f51-a316-46e0-9b14-460a72eae105" class="">Social Efficiency and the Market Equilibrium</h2><p id="84efd2ca-cbee-4080-99a0-0b1b76b1bcec" class="">The market equilibrium quantity is equal to the socially optimal quantity only when all social benefits and costs are internalized by individuals in the market. </p><p id="45fc3c45-b738-419a-9b7a-1d84e6e43af4" class="">Total Economic Surplus is maximized at that quantity.</p><figure id="f315498f-719e-4e56-b612-a8faa702c410" class="image"><a href="Unit%206%20Market%20Failure%20and%20the%20Role%20of%20Government%20b1f7f55c138243c28e22e3f27257c121/Untitled.png"><img style="width:336px" src="Unit%206%20Market%20Failure%20and%20the%20Role%20of%20Government%20b1f7f55c138243c28e22e3f27257c121/Untitled.png"/></a></figure><h2 id="f730861b-85c5-4d3f-8a8c-70d034cbf79a" class="">Socially Efficient Point</h2><p id="13bea560-0c87-4d84-b127-1d94004d8e94" class="">The <strong>Socially Efficient Point</strong> occurs when you are producing at the quantity and price level where <style>@import url('https://cdnjs.cloudflare.com/ajax/libs/KaTeX/0.13.2/katex.min.css')</style><span data-token-index="0" contenteditable="false" class="notion-text-equation-token" style="user-select:all;-webkit-user-select:all;-moz-user-select:all"><span></span><span><span class="katex"><span class="katex-mathml"><math xmlns="http://www.w3.org/1998/Math/MathML"><semantics><mrow><mtext>MSB</mtext><mo>=</mo><mtext>MSC</mtext></mrow><annotation encoding="application/x-tex">\textrm{MSB} = \textrm{MSC}</annotation></semantics></math></span><span class="katex-html" aria-hidden="true"><span class="base"><span class="strut" style="height:0.68333em;vertical-align:0em;"></span><span class="mord text"><span class="mord textrm">MSB</span></span><span class="mspace" style="margin-right:0.2777777777777778em;"></span><span class="mrel">=</span><span class="mspace" style="margin-right:0.2777777777777778em;"></span></span><span class="base"><span class="strut" style="height:0.68333em;vertical-align:0em;"></span><span class="mord text"><span class="mord textrm">MSC</span></span></span></span></span></span><span></span></span>, where all economic surplus is maximized. </p><p id="697a7524-27cf-4e81-98fe-bf97aad0cf91" class="">If we were to produce either at a quantity above or below the equilibrium, we would be producing at an inefficient point where we are either underproducing or overproducing the good or service. The government sometimes has to take action or make policies to correct these inefficiencies. </p><h2 id="3d109241-e032-414c-907a-7f60e6fd5fd5" class="">Factors that affect Socially Efficient Outcomes</h2><ul id="b79dfd84-ce79-4961-b5c6-02cfa3b179ab" class="bulleted-list"><li style="list-style-type:disc">Externalities</li></ul><ul id="319353b1-3407-4731-87b1-ffc2b622240e" class="bulleted-list"><li style="list-style-type:disc">Market Power (Market Structure)</li></ul><ul id="05065643-0f5d-4845-a8ad-569ef16e19e3" class="bulleted-list"><li style="list-style-type:disc">Public Goods</li></ul><ul id="02565828-6e57-4e23-b909-4f8949bd3df6" class="bulleted-list"><li style="list-style-type:disc">Inequality</li></ul><h1 id="9bd3aea3-2434-4d11-badd-5d36cb5265a3" class="">6.2 - <strong>Externalities</strong></h1><p id="7c54cad4-b980-4ef0-a1ff-7a4db70ad0b4" class="">One of the Ten Principles from Chapter 1: Markets are usually a good way to organize economic activity.</p><p id="1f60de79-0ac5-483e-8a93-7096ca9d93e3" class="">In the absence of market failures, the competitive market outcome is efficient and maximizes total surplus. However, there is the possibility for market failures:</p><p id="16da7350-2db6-4789-bfb8-1cd8a93c961f" class="">One type of market failure is an <strong>externality:</strong> the uncompensated impact of one person’s
increased demand.</p><h2 id="ebca5429-6123-4665-944c-425e91080003" class="">Internalizing the Externality</h2><p id="7b0e0b09-3fe7-4a51-b3c9-31feaaad3f49" class=""><strong>Internalizing the Externality: </strong>altering incentives so that people take account of the external effects of their actions.</p><p id="49dfbe5c-6691-4004-aa6e-f3b7b22b1499" class="">When market participants must pay social costs, the market equilibrium will change to meet the social optimum. </p><p id="17ee3e3a-2a37-4126-ab2d-7673b657b359" class="">(Imposing the tax on buyers would achieve the same outcome: market <style>@import url('https://cdnjs.cloudflare.com/ajax/libs/KaTeX/0.13.2/katex.min.css')</style><span data-token-index="0" contenteditable="false" class="notion-text-equation-token" style="user-select:all;-webkit-user-select:all;-moz-user-select:all"><span></span><span><span class="katex"><span class="katex-mathml"><math xmlns="http://www.w3.org/1998/Math/MathML"><semantics><mrow><mi>Q</mi></mrow><annotation encoding="application/x-tex">Q</annotation></semantics></math></span><span class="katex-html" aria-hidden="true"><span class="base"><span class="strut" style="height:0.8777699999999999em;vertical-align:-0.19444em;"></span><span class="mord mathnormal">Q</span></span></span></span></span><span></span></span> would equal optimal <style>@import url('https://cdnjs.cloudflare.com/ajax/libs/KaTeX/0.13.2/katex.min.css')</style><span data-token-index="0" contenteditable="false" class="notion-text-equation-token" style="user-select:all;-webkit-user-select:all;-moz-user-select:all"><span></span><span><span class="katex"><span class="katex-mathml"><math xmlns="http://www.w3.org/1998/Math/MathML"><semantics><mrow><mi>Q</mi></mrow><annotation encoding="application/x-tex">Q</annotation></semantics></math></span><span class="katex-html" aria-hidden="true"><span class="base"><span class="strut" style="height:0.8777699999999999em;vertical-align:-0.19444em;"></span><span class="mord mathnormal">Q</span></span></span></span></span><span></span></span>).</p><h2 id="6e4f570b-8818-4968-8db4-820a72e592e5" class="">Effects of Externalities: Summary</h2><p id="c876fcfa-8b5c-4960-83e8-b797924cb98e" class="">If negative externality:</p><ul id="d8f4926d-0576-40b2-b869-7ea3ee94a35b" class="bulleted-list"><li style="list-style-type:disc">market quantity larger than socially desirable</li></ul><p id="7549c521-235f-4350-b897-35fe3af3c6b0" class="">If positive externality:</p><ul id="331a3089-3df9-4275-8ebd-11fd5fb48b5f" class="bulleted-list"><li style="list-style-type:disc">market quantity smaller than socially desirable</li></ul><p id="f63013d6-e114-498f-8952-21c089554943" class="">To remedy the problem:</p><ul id="40b60112-b7b1-4863-b339-dda6c198a11d" class="bulleted-list"><li style="list-style-type:disc">tax goods with negative externalities</li></ul><ul id="bd19a7d3-a04d-4e77-914c-d97ec3ce10a4" class="bulleted-list"><li style="list-style-type:disc">subsidize goods with positive externalities</li></ul><h2 id="92895d76-e97c-4a7a-9bd4-4e31e8bbdfdb" class="">Public Policies Toward Externalities</h2><ul id="66c9265d-c077-43af-b119-08ad48eafd57" class="bulleted-list"><li style="list-style-type:disc"><strong>Command and Control Policies</strong> regulate behavior directly. Examples: <ul id="4350b7ca-71c1-4f7f-8e44-167a8991b5cc" class="bulleted-list"><li style="list-style-type:circle">limits on quantity of pollution emitted</li></ul><ul id="7fae5c7a-c1bd-4c03-b5f1-ec8b7fbb5461" class="bulleted-list"><li style="list-style-type:circle">requirements that firms adopt a particular technology to reduce emissions</li></ul></li></ul><ul id="a6a407d4-d67c-458d-b9d1-2370a1eb243a" class="bulleted-list"><li style="list-style-type:disc"><strong>Market-based policies</strong> provide incentives so that private decision-makers will choose to solve the problem on their own. Examples:<ul id="153ae1d6-0185-44ff-9297-e53d7f2f2945" class="bulleted-list"><li style="list-style-type:circle">corrective taxes and subsidies</li></ul><ul id="6622aea4-9e54-4f3d-a27f-06cb9fcdf146" class="bul
</strong>If private parties can costlessly bargain over the allocation of resources, they can solve the externalities problem on their own. </li></ul><h2 id="93f08fc0-8303-4592-9464-ea31047a6443" class="">Why Private Solutions Do Not Always Work</h2><ul id="4971a44e-d6bf-41b0-ac1d-32aee8c415ab" class="bulleted-list"><li style="list-style-type:disc"><strong>Transaction Costs
</strong>The costs parties incur in the process of agreeing to and following through on a bargain. These costs may make it impossible to reach a mutually beneficial agreement.</li></ul><ul id="4e0c7562-c8ad-4d25-82af-45ddfcf22e28" class="bulleted-list"><li style="list-style-type:disc">Stubbornness
Even if a beneficial agreement is possible, each party may hold out for a better deal. </li></ul><ul id="dc516d5c-dfea-4108-9192-6e8773b774f7" class="bulleted-list"><li style="list-style-type:disc">Coordination problems
</li></ul><h1 id="221422d6-94b8-4971-adfa-3d6022bfbd7f" class="">6.3 - Public and Private Goods</h1><h2 id="433f91a6-e390-4044-baa4-955485217bd0" class="">Public and Common Goods</h2><p id="1f3d4c88-16f6-43ff-8254-27219b753d98" class="">We consume many goods without paying, such as parks, national defense, clean air and water. When goods have no prices, the market forces that normally allocate resources are absent. Therefore, the private market may fail to provide the socially efficient quantity of these goods. </p><h3 id="e69fd0a5-20d3-42bf-a24d-8672ab22258f" class="">Important Characteristics of Goods</h3><ul id="7c19e7d9-1ffe-4af1-8cfb-0240952f7520" class="bulleted-list"><li style="list-style-type:disc">A good is <strong>excludable</strong> if a person can be prevented from using it. <ul id="b2d42b7a-a2ff-4042-8a6e-ff7f86f604e7" class="bulleted-list"><li style="list-style-type:circle"><em>Excludable</em>: fish tacos, wireless Internet access</li></ul><ul id="4776420d-94b3-4214-9bff-3bbc867bf4ea" class="bulleted-list"><li style="list-style-type:circle"><em>Not excludable</em>: FM radio signals, national defense</li></ul></li></ul><ul id="6c4120e7-d0c4-44bf-be72-a020fb62091b" class="bulleted-list"><li style="list-style-type:disc">A good is <strong>rival in consumption</strong> if one person’s use of it diminishes another person’s use. <ul id="a352ff0b-7619-4114-910a-16fd337e6b64" class="bulleted-list"><li style="list-style-type:circle"><em>Rival</em>: fish tacos</li></ul><ul id="c089188d-47bd-4ba6-aaf0-7bf5ccd45b54" class="bulleted-list"><li style="list-style-type:circle"><em>Not rival</em>: An MP3 file of Kanye West’s donda</li></ul></li></ul><h3 id="ae163c33-21ee-46fc-8bbe-1737ebff2be6" class="">Different Kinds of Goods</h3><ul id="20d18ce5-7abc-4caf-a679-afae2f52bc78" class="bulleted-list"><li style="list-style-type:disc"><strong>Private goods: </strong>goods which are both excludable and rival in consumption<ul id="3e868110-1cd9-4766-a977-2b08a99c2219" class="bulleted-list"><li style="list-style-type:circle">Example: food</li></ul></li></ul><ul id="9f119e02-ec6d-45e3-b8d4-685536cfd6f4" class="bulleted-list"><li style="list-style-type:disc"><strong>Public goods:</strong> goods which are not excludable, and not rival in consumption<ul id="b15f7781-4e4b-45a0-8a54-0535ab07563f" class="bulleted-list"><li style="list-style-type:circle">Example: national defense</li></ul></li></ul><ul id="dc0e6995-19f7-4b66-a5ae-63e040476659" class="bulleted-list"><li style="list-style-type:disc"><strong>Common resources: </strong>goods which are rival in consumption, but not excludable<ul id="12255b21-4d3e-42ac-9d4f-94a94cd47e86" class="bulleted-list"><li style="list-style-type:circle">Example: fish in the ocean</li></ul></li></ul><ul id="977d696d-464b-4240-b3b1-3b86c96da88c" class="bulleted-list"><li style="list-style-type:disc"><strong>Club goods: </strong>goods which are excludable but not rival in consumption<ul id="91ed8b73-e6d2-4b77-8c72-0f7b85f6ba6f" class="bulleted-list"><li style="list-style-type:circle">Example: cable TV</li></ul></li></ul><h3 id="5086c965-be6f-48d5-af5f-83777bd7b30d" class="">Public Goods</h3><ul id="3057460d-62ce-41b1-95e2-e851b744fbca" class="bulleted-list"><li style="list-style-type:disc">Public goods are difficult for private markets to provide because of the <em>free-rider problem</em>.</li></ul><ul id="1b05f5cd-2f55-426e-b511-25ba6c82149d" class="bulleted-list"><li style="list-style-type:disc"><strong>Free rider: </strong>a person who receives the benefit of a good but avoids paying for it.<ul id="7baa8a20-ec3c-45cc-80e8-76713a434888" class="bulleted-list"><li style="list-style-type:circle">If a good is not excludable, people have incentive to be free riders, because firms cannot prevent non-payers from consuming the good.</li></ul></li></ul><ul id="2f38e984-5b99-4f54-9776-969dd7f6e54c" class="bulleted-list"><li style="list-style-type:disc">Result: The good is not produced, even if buyers collectively value the good higher than the cost of providing it.</li></ul><ul id="17e9aa78-b232-427f-9a89-7deb
Allowing one’s flock to graze on the common land reduces its quality for other families.</li></ul><ul id="3e13a84c-a0c1-470e-b7fe-75fa706305cf" class="bulleted-list"><li style="list-style-type:disc">People neglect this external cost, resulting in overuse of the land</li></ul><p id="42c6433c-2976-4b86-880d-8d3b9329d72e" class=""><strong>Policy Options to Prevent Overconsumption</strong></p><ul id="8c82d327-b024-4f83-86c7-fdebeb79e047" class="bulleted-list"><li style="list-style-type:disc">Regulate the resource</li></ul><ul id="c4914d41-6a62-4322-a046-f1b8536c5158" class="bulleted-list"><li style="list-style-type:disc">Impose a corrective tax to internalize the externality<ul id="c4576776-8a35-4b62-8793-cf71f00278e0" class="bulleted-list"><li style="list-style-type:circle">Example: hunting and fishing licenses, entrance fees for congested national parks</li></ul></li></ul><ul id="55ec5def-aa3b-4023-b994-b8fd9d4e3ae4" class="bulleted-list"><li style="list-style-type:disc">Auction off permits allowing use of the resource<ul id="d0c91341-3d05-4ac2-b8a9-7a9691a2ccf9" class="bulleted-list"><li style="list-style-type:circle">Example: Spectrum auctions by the U.S. FCC</li></ul></li></ul><ul id="9cd38af9-e7b7-4cf2-845f-b532913acc40" class="bulleted-list"><li style="list-style-type:disc">If the resource is land, convert to a private good by dividing and selling parcels to individuals</li></ul><h2 id="019964d7-a3b8-4dc1-9ee3-390cd9de5730" class="">Conclusion</h2><ul id="392a6bd8-d9cd-4d23-8828-b8a3f087eaa5" class="bulleted-list"><li style="list-style-type:disc">Public goods tend to be under-provided, while common resources tend to be over-consumed. </li></ul><ul id="4b61ad11-b52c-4b7d-9ff4-effcc05b6cb9" class="bulleted-list"><li style="list-style-type:disc">These problems arise because property rights are not well-established:<ul id="b7c43114-3fab-4142-8dcd-d9e21a7719da" class="bulleted-list"><li style="list-style-type:circle">Nobody owns the air, so no one can charge polluters. Result: too much pollution</li></ul><ul id="cd5a6e3f-70cc-4516-a754-dca47e343992" class="bulleted-list"><li style="list-style-type:circle">Nobody can charge people who benefit from national defense. Result: too little defense</li></ul></li></ul><ul id="cff83209-5de7-4fc9-bcb7-c531013b16b0" class="bulleted-list"><li style="list-style-type:disc">The government can potentially solve these problems with appropriate policies. </li></ul><h1 id="198897d5-680f-48b7-a78e-5139fa832fa6" class=""><strong>6.4 - The Effects of Government Intervention in Different Market Structures</strong></h1><h2 id="06ce6a4e-415d-40a7-8361-c40729126300" class="">Perfect Competition</h2><p id="c8378640-c656-40ef-a21e-e169c5d3f55d" class="">In a perfectly competitive market, a tax will shift the supply curve to the left, resulting in a new higher price, a lower quantity demanded, and an associated deadweight loss:</p><figure id="0bcb4a64-ede4-4fc7-8368-c58b485885bf" class="image"><a href="Unit%206%20Market%20Failure%20and%20the%20Role%20of%20Government%20b1f7f55c138243c28e22e3f27257c121/Untitled%203.png"><img style="width:480px" src="Unit%206%20Market%20Failure%20and%20the%20Role%20of%20Government%20b1f7f55c138243c28e22e3f27257c121/Untitled%203.png"/></a></figure><p id="e22f230d-bcf1-4356-aa2b-03e646a5a3fe" class="">A subsidy in a perfectly competitive market will shift the supply curve to the right, resulting in a new lower price, a higher quantity demanded, and an associated deadweight loss:</p><figure id="330bdf1d-7aff-4f21-9c33-2abf515420f1" class="image"><a href="Unit%206%20Market%20Failure%20and%20the%20Role%20of%20Government%20b1f7f55c138243c28e22e3f27257c121/Untitled%204.png"><img style="width:528px" src="Unit%206%20Market%20Failure%20and%20the%20Role%20of%20Government%20b1f7f55c138243c28e22e3f27257c121/Untitled%204.png"/></a></figure><h2 id="94ccb824-6646-4262-b217-3033762e45e3" class="">Natural Monopoly</h2><p id="fdb7b451-73a0-4e48-bf2c-8feade2684b8" class="">A natural monopoly is a market where the most efficient number of firms in the industry is only one. This is often du
low-income groups. <ul id="faa02675-c1c0-4565-9b66-313efd624d39" class="bulleted-list"><li style="list-style-type:circle">The most common example of a progressive tax is the Federal Income Tax System in the United States. This system divides people into tax brackets based on their income level, and taxes people increasing amounts as income increases. To demonstrate, someone making between $0 and $14,100 this year is taxed 10% of that income, while someone making between $14,101 and $53,700 this year is taxed 12% of that income.</li></ul></li></ul><ul id="35149761-df7b-4f1a-8d6f-d26c38db4928" class="bulleted-list"><li style="list-style-type:disc"><strong>Regressive taxes</strong> take a larger percentage from low-income groups than from high-income
groups. <ul id="ee039372-28e5-4b3a-a6bd-0ac8c1ede24f" class="bulleted-list"><li style="list-style-type:circle">The most common example of a regressive tax is sales tax in the United States. Let&#x27;s say the sales tax is 5% in a state, and Sally and Bob both spend $200 in sales taxes. Sally only makes $10,000 a year, so this $200 takes a larger percentage of her income than Bob, who makes $100,000 a year. Although this sales tax is the same for everyone, someone in a low-income group will feel the burden of this tax more than someone in a high-income group.</li></ul></li></ul><ul id="be4a76b1-67a0-4dab-ae67-a942834096f2" class="bulleted-list"><li style="list-style-type:disc"><strong>Proportional taxes</strong> takes the same percentage of income from all income groups. <ul id="52c2e6f2-416b-4d08-aaad-b96aea1b4fff" class="bulleted-list"><li style="list-style-type:circle">For example, if there was a 20% flat income tax on all income groups, each income group is equally affected by the tax.</li></ul></li></ul><p id="560b15d9-e07f-45c9-9082-690a9c07c139" class="">
</p></div></article></body></html>