5) Welfare, Externalities and Public Goods PDF

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BUSN1000 Business Economics – Learning Outcomes

SECTION 1 – MICROECONOMICS: PRICES AND MARKETS BUSN1000 Business Economics – Learning Outcomes Topic 5: Welfare, externalities and public goods Welfare  Define marginal benefit  Define marginal cost  Define consumer surplus and depict total consumer surplus in a diagram  Define producer surplus and depict total producer surplus in a diagram  Identify two alternative techniques for deducing the socially optimal level of output: o one considering marginal costs and marginal benefits; and o one considering consumer and producer surplus  Identify the socially optimum level of output in a market, in the absence of externalities Externalities  Define an externality  Distinguish between positive and negative externalities  Provide examples of each kind of externality  Depict the relationship between the demand curve, marginal private benefit, marginal social benefit and, in a separate diagram for each: o Negative externalities in consumption o Positive externalities in consumption  Depict the relationship between the supply curve, marginal private cost, marginal social cost and, in a separate diagram for each: o Negative externalities in production o Positive externalities in production  Show the deadweight loss arising from negative externalities in your diagrams  Show the deadweight loss arising from positive externalities in your diagrams  Discuss the ways in which the deadweight loss arising from negative externalities can be overcome  Show in a diagram how a producer tax can overcome the problem of negative externalities  Discuss the ways in which the deadweight loss arising from positive externalities can be overcome  Show in a diagram how a producer subsidy can overcome the problem of positive externalities Public goods and common resources  Distinguish between excludability and non-excludability in relation to a good  Distinguish between rivalry in consumption and non-rivalry in consumption of a good  Distinguish between private goods, public goods, common resources and natural monopoly goods  Provide examples of each kind of good  Explain the free-rider problem that arises for public goods  Discuss how the free-rider problem can be overcome  Explain the tragedy of the commons problem that arises for common resources  Discuss how the tragedy of the commons can be overcome

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