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Public Goods, Externalities, and the Role of Government

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Public Goods, Externalities, and the Role of Government

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1. Spillover benefits

Exists when the production of a good imposes disutility (the spillover costs) upon third parties not directly involved in the consumption or production of the good." Additional benefits to society, not captured by the market demand curve from the production of a good, result in a price that is too high and a market quantity that is too low. Resources are underallocated to the production of this good." The MSB reflects the additional benefit received by all members of society, including both those who actually consume the good and those who receive spillover benefits from that consumption; the socially optimal demand curve." The MPC reflects the additional cost incurred by actual producers of a good; the market supply curve."

2. Marginal social benefit curve (MSB)

Additional benefits to society, not captured by the market demand curve from the production of a good, result in a price that is too high and a market quantity that is too low. Resources are underallocated to the production of this good." The MSB reflects the additional benefit received by all members of society, including both those who actually consume the good and those who receive spillover benefits from that consumption; the socially optimal demand curve." The MPC reflects the additional cost incurred by actual producers of a good; the market supply curve." Exists when the production of a good imposes disutility (the spillover costs) upon third parties not directly involved in the consumption or production of the good."

3. Negative externality

4. Marginal private cost curve (MPC)

The MSB reflects the additional benefit received by all members of society, including both those who actually consume the good and those who receive spillover benefits from that consumption; the socially optimal demand curve." Exists when the production of a good imposes disutility (the spillover costs) upon third parties not directly involved in the consumption or production of the good." The MPC reflects the additional cost incurred by actual producers of a good; the market supply curve." Additional benefits to society, not captured by the market demand curve from the production of a good, result in a price that is too high and a market quantity that is too low. Resources are underallocated to the production of this good."

5. Average tax rate

Additional benefits to society, not captured by the market demand curve from the production of a good, result in a price that is too high and a market quantity that is too low. Resources are underallocated to the production of this good." The MSB reflects the additional benefit received by all members of society, including both those who actually consume the good and those who receive spillover benefits from that consumption; the socially optimal demand curve." The proportion of total income paid to taxes. It is calculated by dividing the total taxes owed by the total taxable income." Exists when the production of a good imposes disutility (the spillover costs) upon third parties not directly involved in the consumption or production of the good."

6. Proportional tax

A constant proportion of income is paid in taxes no matter the level of income. An example is a “flat tax” or the corporate income tax." Additional benefits to society, not captured by the market demand curve from the production of a good, result in a price that is too high and a market quantity that is too low. Resources are underallocated to the production of this good." The MSB reflects the additional benefit received by all members of society, including both those who actually consume the good and those who receive spillover benefits from that consumption; the socially optimal demand curve." Exists when the production of a good imposes disutility (the spillover costs) upon third parties not directly involved in the consumption or production of the good."

7. Marginal tax rate

Additional benefits to society, not captured by the market demand curve from the production of a good, result in a price that is too high and a market quantity that is too low. Resources are underallocated to the production of this good." The MSB reflects the additional benefit received by all members of society, including both those who actually consume the good and those who receive spillover benefits from that consumption; the socially optimal demand curve." The rate paid on the last dollar earned. This is found by taking the ratio of the change in taxes divided by the change in income." Exists when the production of a good imposes disutility (the spillover costs) upon third parties not directly involved in the consumption or production of the good."

8. Public goods

Additional benefits to society, not captured by the market demand curve from the production of a good, result in a price that is too high and a market quantity that is too low. Resources are underallocated to the production of this good." The MSB reflects the additional benefit received by all members of society, including both those who actually consume the good and those who receive spillover benefits from that consumption; the socially optimal demand curve." Exists when the production of a good imposes disutility (the spillover costs) upon third parties not directly involved in the consumption or production of the good." Goods that are both nonrival and nonexcludable. One person's consumption does not prevent another from also consuming the good, and if it is provided to some, it is necessarily provided to all, even if they do not pay for the good. Examples are local police services and national defense."

9. Marginal private benefit curve (MPB)

Additional benefits to society, not captured by the market demand curve from the production of a good, result in a price that is too high and a market quantity that is too low. Resources are underallocated to the production of this good." The MPB reflects the additional benefit received by actual consumers of a good; the market demand curve." Exists when the production of a good imposes disutility (the spillover costs) upon third parties not directly involved in the consumption or production of the good." The MSB reflects the additional benefit received by all members of society, including both those who actually consume the good and those who receive spillover benefits from that consumption; the socially optimal demand curve."

10. Gini ratio

Additional benefits to society, not captured by the market demand curve from the production of a good, result in a price that is too high and a market quantity that is too low. Resources are underallocated to the production of this good." A measure of a nation's income inequality. This measure uses a scale between zero and one. The closer it lies to zero, the more equal the distribution of income."Exists when the production of a good imposes disutility (the spillover costs) upon third parties not directly involved in the consumption or production of the good." The MSB reflects the additional benefit received by all members of society, including both those who actually consume the good and those who receive spillover benefits from that consumption; the socially optimal demand curve."

11. Tax bracket

A range of income on which a given marginal tax rate is applied." The MSB reflects the additional benefit received by all members of society, including both those who actually consume the good and those who receive spillover benefits from that consumption; the socially optimal demand curve." Additional benefits to society, not captured by the market demand curve from the production of a good, result in a price that is too high and a market quantity that is too low. Resources are underallocated to the production of this good." Exists when the production of a good imposes disutility (the spillover costs) upon third parties not directly involved in the consumption or production of the good."

12. Private goods

The MSB reflects the additional benefit received by all members of society, including both those who actually consume the good and those who receive spillover benefits from that consumption; the socially optimal demand curve." Goods that are both rival and excludable. Only one person can consume the good at a time, and consumers who do not pay for the good are excluded from the consumption. Examples include a tube of toothpaste or an airline ticket." Exists when the production of a good imposes disutility (the spillover costs) upon third parties not directly involved in the consumption or production of the good." Additional benefits to society, not captured by the market demand curve from the production of a good, result in a price that is too high and a market quantity that is too low. Resources are underallocated to the production of this good."

13. Positive externality

Additional benefits to society, not captured by the market demand curve from the production of a good, result in a price that is too high and a market quantity that is too low. Resources are underallocated to the production of this good." Exists when the production of a good creates utility (the spillover benefits) for third parties not directly involved in the consumption or production of the good." The MSB reflects the additional benefit received by all members of society, including both those who actually consume the good and those who receive spillover benefits from that consumption; the socially optimal demand curve." Exists when the production of a good imposes disutility (the spillover costs) upon third parties not directly involved in the consumption or production of the good."

14. Progressive tax

The proportion of income paid in taxes rises as income rises. An example is the personal income tax." Additional benefits to society, not captured by the market demand curve from the production of a good, result in a price that is too high and a market quantity that is too low. Resources are underallocated to the production of this good." The MSB reflects the additional benefit received by all members of society, including both those who actually consume the good and those who receive spillover benefits from that consumption; the socially optimal demand curve." Exists when the production of a good imposes disutility (the spillover costs) upon third parties not directly involved in the consumption or production of the good."

15. Regressive tax

Additional benefits to society, not captured by the market demand curve from the production of a good, result in a price that is too high and a market quantity that is too low. Resources are underallocated to the production of this good." Exists when the production of a good imposes disutility (the spillover costs) upon third parties not directly involved in the consumption or production of the good." The proportion of income paid in taxes decreases as income rises. An example is a sales tax." The MSB reflects the additional benefit received by all members of society, including both those who actually consume the good and those who receive spillover benefits from that consumption; the socially optimal demand curve."

16. Free-rider problem

In the case of a public good, some members of the community know that they can consume the public good while others provide for it. This results in a lack of private funding for the good and requires that the government provide it." The MSB reflects the additional benefit received by all members of society, including both those who actually consume the good and those who receive spillover benefits from that consumption; the socially optimal demand curve." Exists when the production of a good imposes disutility (the spillover costs) upon third parties not directly involved in the consumption or production of the good." Additional benefits to society, not captured by the market demand curve from the production of a good, result in a price that is too high and a market quantity that is too low. Resources are underallocated to the production of this good."

17. Egalitarianism

Exists when the production of a good imposes disutility (the spillover costs) upon third parties not directly involved in the consumption or production of the good." The MSB reflects the additional benefit received by all members of society, including both those who actually consume the good and those who receive spillover benefits from that consumption; the socially optimal demand curve." Additional benefits to society, not captured by the market demand curve from the production of a good, result in a price that is too high and a market quantity that is too low. Resources are underallocated to the production of this good." The philosophy that all citizens should receive an equal share of the economic resources."

18. Marginal productivity theory

The MSB reflects the additional benefit received by all members of society, including both those who actually consume the good and those who receive spillover benefits from that consumption; the socially optimal demand curve." Exists when the production of a good imposes disutility (the spillover costs) upon third parties not directly involved in the consumption or production of the good." Additional benefits to society, not captured by the market demand curve from the production of a good, result in a price that is too high and a market quantity that is too low. Resources are underallocated to the production of this good." The philosophy that a citizen should receive a share of economic resources proportional to the marginal revenue product of his or her productivity."

19. Spillover costs

Exists when the production of a good imposes disutility (the spillover costs) upon third parties not directly involved in the consumption or production of the good." Additional benefits to society, not captured by the market demand curve from the production of a good, result in a price that is too high and a market quantity that is too low. Resources are underallocated to the production of this good." The MSB reflects the additional benefit received by all members of society, including both those who actually consume the good and those who receive spillover benefits from that consumption; the socially optimal demand curve." Additional costs to society, not captured by the market supply curve from the production of a good, result in a price that is too low and market quantity that is too high. Resources are overallocated to the production of this good."

20. Marginal social cost curve (MSC)

The MSB reflects the additional benefit received by all members of society, including both those who actually consume the good and those who receive spillover benefits from that consumption; the socially optimal demand curve." Exists when the production of a good imposes disutility (the spillover costs) upon third parties not directly involved in the consumption or production of the good." The MSC reflects the additional cost incurred by all members of society, including those who actually produce the good and those who incur spillover costs from that production; the socially optimal supply curve." Additional benefits to society, not captured by the market demand curve from the production of a good, result in a price that is too high and a market quantity that is too low. Resources are underallocated to the production of this good."

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❤ If you liked Fatskills, consider supporting us by checking out The Life Manuals You Never Got.

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