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A positive externality (also called "external benefit" or "external economy" or "beneficial externality") is the positive effect an activity imposes on an unrelated third party. [33] Similar to a negative externality, it can arise either on the production side, or on the consumption side. [19]
The first benefit (or dividend) is the benefit or welfare gain resulting from a better environment and less pollution (caused by a Pigouvian tax imposed on the producer), and the second dividend or benefit is a more efficient tax system due to a reduction in the distortions of the revenue-raising tax system, which also produces an improvement ...
In a Lindahl equilibrium, the optimal quantity of the public good will be where the social marginal benefit intersects the marginal cost (point P). Each individual's Lindahl tax rate will be based on their own marginal benefit curve. In this model, individual B will pay the price level at R and individual A will pay at point J.
By internalizing the externality, both the Smith family and the Jones family increase their overall utility by increasing production from 3 pear trees a year to 4. $5 is the maximum price the Smiths are willing to pay for an additional, fourth, pear tree, which implies their marginal benefit to plant a fifth pear tree is 0.
In economics, deadweight loss is the loss of societal economic welfare due to production/consumption of a good at a quantity where marginal benefit (to society) does not equal marginal cost (to society) – in other words, there are either goods being produced despite the cost of doing so being larger than the benefit, or additional goods are not being produced despite the fact that the ...
Mathematically, social marginal cost is the sum of private marginal cost and the external costs. [3] For example, when selling a glass of lemonade at a lemonade stand, the private costs involved in this transaction are the costs of the lemons and the sugar and the water that are ingredients to the lemonade, the opportunity cost of the labor to combine them into lemonade, as well as any ...
The applications of the marginal cost of public funds include the Samuelson condition for the optimal provision of public goods and the optimal corrective taxation of externalities in public economic theory, the determination of tax-smoothing policy rules in normative public debt analysis and social cost-benefit analysis common in practical ...
A pecuniary externality occurs when the actions of an economic agent cause an increase or decrease in market prices. For example, an influx of city-dwellers buying second homes in a rural area can drive up house prices, making it difficult for young people in the area to buy a house.