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Negative externality of production by Harry, Edward and Rain


Solutions to negative externality of production
Mind Map by tringuyenngocmin, updated more than 1 year ago
Created by tringuyenngocmin over 6 years ago

Resource summary

Negative externality of production by Harry, Edward and Rain
  1. Remedies
    1. Supply
      1. Market-based solution
        1. Imposing taxes (ie IBM laptops releasing pollutants into the air)
          1. PROS
            1. Reducing the amount of well fare loss, increasing revenue for government to use it in public goods
            2. CONS
              1. Difficult to measure the pollution created accurately and to put a value on it
                1. Difficult to identify which firms are polluting and to what extent each firm is responsible for the pollution.
                  1. Taxes do not stop the actual pollution
                2. Tradeable pollution permits (Cap and Trade system)
                  1. Licences to pollute a specific amount that the government allocates to polluting firms that are tradable in the open market.
                    1. PROS
                      1. The limit of pollution is set
                        1. Incentive to create more green and efficient firms
                          1. Loss of output is smaller than if the government splits the total level of pollution up into same amount for all firms.
                          2. CONS
                            1. not reduce pollution
                              1. difficulty in determining the initial allocation of permits
                        2. Command-and-control solutions
                          1. Ban or restrict output of the poducts
                            1. Cons
                              1. Unemployment
                                1. Non-consumption of valuable products
                                2. Pros
                                  1. Reduce pollution
                            2. Demand
                              1. Advertising, or moral suasion, education
                            3. Market failure
                              1. Problems?
                                1. Lower price, more quantity
                                  1. Over-consumption and over-supply
                                    1. Inefficient allocation of resources
                                2. Effect?
                                  1. Threats to Sustainability
                                    1. Welfare Loss
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