External cost or external benefit, Microeconomics

Explain externality, how can government intervene to achieve allocative efficiency in case of external cost or external benefit?

Answer

The term externalities refers to both external economies and diseconomies. When the action of an economic decision maker creates benefits for others, without being compensated it creates an external economy for others. When the action of an individual creates costs for others for which he does not pay, it creates an external diseconomy.

Government can intervene to achieve allocative efficiency by the following ways-

1) Imposing taxes.

2) Providing subsidies.

3) Setting quotas limits.

 

Posted Date: 3/12/2013 4:00:19 AM | Location : United States







Related Discussions:- External cost or external benefit, Assignment Help, Ask Question on External cost or external benefit, Get Answer, Expert's Help, External cost or external benefit Discussions

Write discussion on External cost or external benefit
Your posts are moderated
Related Questions
what will be the possible concequences if a large scale like Toyota place its new product in Indian market without having forecast the demand for its product

You are examining the effects of a specific tax of 10 cents imposed on the sales of a product that we shall call XYZ. To carry out your analysis, assume that the market is a perfec

what are the practical importance of income elasticity of demand?

If coolest icecream parlor has been closing at 5pm with $120 of marginal revenue and $80 of marginal cost for the last hour open, what should coolest icecream do to maximize profit

Normal 0 false false false EN-IN X-NONE X-NONE MicrosoftInternetExplorer4

Marginal Product (MP) of a Factor: From the above mentioned production function, immediately we can study the effect on total output when there is a variation in labour utlili

Explain the micro and macro economic issues that can be represented on the PPC

Why a high level of labor force growth is correlated A high level of labor force growth is correlated--even though less powerfully--with a low level of output per worker. The a

THE WORLD BANK: The World Bank is another of the 'Brettonwoods Twin Sisters'. The World Bank, as it obtains presently, is an  umbrella organisation, under which five different

2. You are examining the effects of a specific tax of 10 cents imposed on the sales of a product that we shall call XYZ. To carry out your analysis, assume that the market is a per