Externalities

… a core topic in Economic Analysis and Atlas102

ExternalCosts1Topic description

This topic deals with market externalities.

The treatment of this topic on the Atlas follows almost precisely that in Chapter 7, Externalitiesin the open access Principles of Microeconomics course offered by Tyler Cowen and Alex Tabarrok at the Marginal Revolution University online education platform (http://www.mruniversity.com/courses/principles-economics-microeconomics, accessed 6 May 2016).

Topic learning outcome

Appropriately utilize and interpret results of applying to the analysis of public policy and management problems the basic principles of prices, including following core concepts.

Core concepts associated with this topic
Externality

Command and Control Solutions vs. Taxes and Subsidies

Coase Theorem

Tradable Allowances

Private Cost

External Cost

Social Cost

Private Benefit

External Benefit

Private Benefit

Social Surplus

Bystanders Surplus

Efficient Equilibrium

Deadweight Loss

Pigouvian Tax

Pigouvian Subsidy

Transaction Costs

Readings

We believe that this topic and its core concepts can be mastered to the MPP/MPA level by watching and re-watching the 46 minutes of MRU course videos listed below and doing the 35 sample questions associated with these video segments and reproduced at the bottom of this page and repeated on the appropriate concept pages.

Atlas pages: Externalities and associated Concepts.

Alex Tabarrok, An Introduction to Externalities (12-minute video), Principles of Economics – Microeconomics, Marginal Revolution University, at http://www.mruniversity.com/courses/principles-economics-microeconomics/externalities-definition-pigovian-tax, accessed 6 May 2016.

Alex Tabarrok, External Benefits (7-minute video), Principles of Economics – Microeconomics, Marginal Revolution University, at http://www.mruniversity.com/courses/principles-economics-microeconomics/flu-shot-positive-externalities-pigovian-subsidy, accessed 6 May 2016.

Alex Tabarrok, Command and Control (9-minute video), Principles of Economics – Microeconomics, Marginal Revolution University, at http://www.mruniversity.com/courses/principles-economics-microeconomics/externalities-command-and-control, accessed 6 May 2016.

Alex Tabarrok, The Coase Theorem (8-minute video), Principles of Economics – Microeconomics, Marginal Revolution University, at http://www.mruniversity.com/courses/principles-economics-microeconomics/coase-theorem-example, accessed 6 May 2016.

Alex Tabarrok, Trading Pollution (4-minute video), Principles of Economics – Microeconomics, Marginal Revolution University, at http://www.mruniversity.com/courses/principles-economics-microeconomics/deeper-look-tradeable-allowances, accessed 6 May 2016.

Alex Tabarrok, A Deeper Look at Tradeable Allowances (6-minute video), Principles of Economics – Microeconomics, Marginal Revolution University, at http://www.mruniversity.com/courses/principles-economics-microeconomics/deeper-look-tradeable-allowances, accessed 6 May 2016.

Textbook readings in MPP and MPA courses 

University of Toronto: PPG-1002

Varian, Hal R., and Jack Repcheck. Intermediate microeconomics: a modern approach. Vol. 6. New York, NY: WW Norton & Company, 2010. Chapter 34 (p. 645-667).

Harvard Kennedy School: API-101

Pindyck, Robert S. and Daniel L. Rubinfeld. Microeconomics, 8th Edition. Prentice-Hall, 2012. Chapter 18 (661-690).

NYU Wagner: GP-1018

Mankiw, N. Gregory. Principles of Microeconomics, 6th edition. Mason: South-Western College Publishers, 2011. Chapter 10.

Johnson-Shoyama: JS-805

Krugman, Paul, Robin Wells, and Anthony Myatt. Microeconomics: 1st Canadian Edition. London: Worth Publishers, 2006. Chapters 18 – 20.

George Washington: PPPA-6003

Mankiw, N. Gregory. Principles of Microeconomics, 6th edition. Mason: South-Western College Publishers, 2011. Chapters 10 and 11.

Wheelan, Charles. Naked Economics: Undressing the Dismal Science. New York: W. W. Norton& Company, 2010. Chapter 3.

American: PAUD-630

Krugman, Paul and R. Wells, Microeconomics, 3rd edition. London: Worth Publishers, 2012. Chapter 16.

Rutgers: Economics in Public Policy

Pindyck, Robert S., and D. Rubinfeld. Microeconomics, 7th edition.  Upper Saddle River: Patience-Hall, 2007. Chapter 18.

Coase, Ronald. “The Problem of Social Cost.” Journal of Law and Economics 3 (1960): 1-44.

Assessment questions

From http://www.mruniversity.com/node/210427 and http://www.mruniversity.com/node/210518, http://www.mruniversity.com/node/210544, http://www.mruniversity.com/node/210562http://www.mruniversity.com/node/210663 and http://www.mruniversity.com/node/210671, accessed 6 May 2016.

AQ102.07.01. The price you pay for an iTunes download

AQ102.07.24. Consider a factory, located in the middle of nowhere, producing a nasty smell. As long as no one is around to experience the unpleasant odor, what type of externality is produced?

AQ102.07.29. An increase in the number of pollution allowances does which of the following:

Page created by: Ian Clark, last modified on 16 May 2016.

Image: Minute 8:11 of MRU Video, An Introduction to Externalities, at http://www.mruniversity.com/courses/principles-economics-microeconomics/externalities-definition-pigovian-tax, accessed 2 May 2016.