Externalities

Question	Answer
The importance of Property Rights	Way for polluters to pay - failure to protect property rights may lead to the tragedy of the commons
Negative Externalities	This occur when production and/or consumption impose external costs on third parties outside of the market for which no appropriate compensation is made -This leads to over production and market failure
Diagram of Negative Externalities	Image: c7427dda-201d-46c5-9d11-342fc81deab2 (image/png)
Reducing Externalities : Use of Pollution Taxes	This increase the private costs, which causes a fall in demand. This also increases government tax revenue, which can be invested into a cleaner and greener environment
Reducing Externalities : Carbon Trading in the EU	Cap and Trade scheme and this allocates or auctions emissions allowances
Advantages of UK Carbon Price Floor	-Makes low carbon electricity more competitive -Help to reduce carbon price volatility
Disadvantages of Carbon price floor	-Better Alternatives -Restrict supply of carbon permits to increase market price
Evaluation: Problems with environmental taxes	-Assigning the right level of tax -Consumer welfare effects -Employment and investment consequences
Positive externalities	This occurs when production and/or consumption create external benefits on third parties outside the market This could lead to market failure due to it being under-provided.
Diagram for positive externalities	Image: a6af0db2-04d6-4ba4-936c-88f45e6b4b62 (image/png)

Resource summary

	Created by Mary Doria over 8 years ago