Externality tax, Public Economics

Externality Tax

The basic principles of environmental policy are based on the theory of externalities. The problem of externality may be interpreted as an unintended and uncompensated side effect of a person's or firm's activity on others. In a formal way, environmental externalities occur when the consumption and production choices of one person or firm enters the utility or production function of another entity without the said entity's consent or compensation.

In many instances, the problem of externality creeps into many government policies having spill over effects. For example, free electricity offered to farmers for irrigation purposes results in over-extraction of ground water, which depletes the water table. In this case the private cost of lift irrigation borne by the farmer is the price paid by him, but a larger social cost is involved in terms of reduced availability of water to others. Overall, there is a difference between private marginal cost and social marginal cost in the presence of externalities; social marginal cost of pollution being always higher than private marginal cost. As the producer of a polluting good takes into account the private cost while deciding on the level of output, there is excessive supply than the optimal level.

Posted Date: 12/18/2012 6:06:01 AM | Location : United States







Related Discussions:- Externality tax, Assignment Help, Ask Question on Externality tax, Get Answer, Expert's Help, Externality tax Discussions

Write discussion on Externality tax
Your posts are moderated
Related Questions
study guide for Magruder''s American Government. the tests are supper hard

One of these is deregulator or privatization of public enterprises or utilities. Deregulation is a world wide phenomenon. But experience of power failure in California and Mumbai r

Suppose the firm mark up over the cost is 10% and the wage setting equation is W=P (1-u) where U is the unemployment rate. a) Find out the real wage rate implied by the price se

Corporate communication can be anything from how a corporation functions internally/externally, to what is making its communications operate like call center equipment, etc.

Q. Show the Traditional decision analysis? Traditional decision analysis rests on the key assumptions about the type of information available to the decision maker. Powerful B

Related Goods Approaches - Direct Substitute Approach Normal 0 false false false EN-IN X-NONE X-NONE MicrosoftInterne

The major economies in the world are in a deep recession although there are some signs of growth. What implications has such a recession had for international business? How have go


Are there any current subsidy or welfare issues that are being discussed or addressed in parliament or municipalities?

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