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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. Marginal social cost curve (MSC)

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." 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."

2. Spillover benefits

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." 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."

3. Marginal social benefit curve (MSB)

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." 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."

4. Negative externality

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 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." 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."

5. Egalitarianism

The philosophy that all citizens should receive an equal share of the economic resources." 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 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."

6. Marginal productivity theory

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." 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." 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."

7. Marginal private benefit curve (MPB)

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." The MPB reflects the additional benefit received by actual consumers of a good; the market 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 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."

8. Free-rider problem

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." 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 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."

9. Average tax rate

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 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." The proportion of total income paid to taxes. It is calculated by dividing the total taxes owed by the total taxable income."

10. Tax bracket

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 range of income on which a given marginal tax rate is applied." 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." 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. Spillover costs

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." 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." 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."

12. Progressive 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 proportion of income paid in taxes rises as income rises. An example is the personal income 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." 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."

13. Marginal tax rate

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." 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." 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."

14. Marginal private cost curve (MPC)

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 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." The MPC reflects the additional cost incurred by actual producers of a good; the market supply curve." 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."

15. Public goods

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." 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 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." 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."

16. Regressive 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." The proportion of income paid in taxes decreases as income rises. An example is a sales tax." 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."

17. Gini ratio

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." 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."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."

18. Positive externality

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 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." 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." 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."

19. 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." 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."

20. Proportional 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." 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 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." 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."

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

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