Intermediate Microeconomics · free preview
Externalities and the Coase Theorem
Externalities wedge private from social cost, the worked steel market producing 15 where 12 is efficient with deadweight 9, Pigou's tax of 6 per unit restoring the margin, Coase's theorem showing bargaining to efficiency regardless of rights when parties transact cheaply, and cap-and-trade pricing the pollution directly.
1. The wedge
The wedge
2. Pigou's tax
Pigou's tax
3. Coase's bargain
Coase's bargain
4. From smoke to bees
From smoke to bees
5. The competitive outcome
What does the unregulated steel market produce and at what price?
6. The efficient quantity
How is the efficient output found in the externality market?
7. The Pigouvian tax
What tax per unit restores efficiency, and how does it work?
8. Coase's conditions
When does the Coase theorem's bargaining actually reach efficiency?
9. The externality wedge
Compute the deadweight loss, the triangle between quantities 12 and 15 with height 6, half base times height, and write the number.
10. The tax-rate rule
The marginal external cost is 6 and the tax must equal it. Write the tax per unit.
11. After the tax
The 6-dollar tax lands. What do buyers pay, sellers net, and the market produce?
12. The social curve checked
What does the social marginal cost read at the efficient quantity of 12?
13. Why not simply ban
Why is zero steel output the wrong prescription despite the pollution?
14. The bargain in numbers
Residents hold the right to clean air. What bargain runs the market to 12?
15. The buyer price after the tax
With the efficient quantity of 12 and demand p equal to 30 minus Q, compute the buyer price, and write the number.
16. The seller's net after the tax
With buyers paying 18 and the 6-dollar tax per unit, compute the seller's net price, and write the number.
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