Definitions
What is an externality?
An extra cost to a third party not included in the initial transaction (consumer and producer)
What does the shaded area represent?
dead weight loss/ wellfare loss
What are Pigouvian taxes?
Taxes designed to correct for the inefficiencies of negative externalities
What are negative externalities?
when the production process of a good/service imposes costs on individuals or the environment (not compensated by the producer)
What part of the graph represents the negative externality?
The difference between MSC and MPC
How did the US improve the consumerism of products with large negative externalities?
Education and Awareness
What is Welfare loss?
the economic inefficiency that results when resources are not allocated optimally, leading to a reduction in overall economic well-being
What makes this graph a negative externalities graph?
Because MSC>MPC
What is the role of international agreements?
They keep countries accountable to reach global environmental goals