Post Midterm 2 Econ

Who do imports benefit?

They raise TS, helping consumers and hurting producers

Imports Impact

Excess demand,

Tariffs

Vertically raising the world price. creates DWL in the triangles and a revenue in the middle

Tariff impact

Producers benefit, all prices go up. TS decreases because of DWL, Imports shrink

MC and MB become…

MPC and MPB (private cost and private benefit).

AKA, the supply and demand curve.

Negative externality in production

MSC (which is MEC + MPC) > MPC. Adding the private cost and externality to the total social. It should outweigh the marginal private cost on its own.

OVERPRODUCTION (think, producer produced thinking that there was no externality, but people don’t want anymore so he produces more than needed)

Negative externality in consumption

MSB (which is MPB - MEC) < MPB. Subtracting the cost from the private benefit gives us the real benefit, which is less than the original.
OVERCONSUMPTION (think, if it’s bad, consumers don’t know and they mistakenly consume MORE than what is actually efficient)

Positive externality in consumption

MSB (which is MPB - MEC) > MPB. The social benefit is bigger than the private benefit, so people underconsume. Think, people don’t know it’s actually good!

Positive externality in production

MSC (MEC + MPC) < MPC, producers don’t know that the social cost is actually less than the private cost, so they could be more efficient. This causes underproduction.

Perfect Comp in Externalities

To find the perfect comp price, compare MPB and MPC (like how you would normally for supply/demand)

Socially Efficient in Externalities

Use the MEC to change the MPB/MPC (depending on externality). Then compare the MSC/MSB with the MPB/MPC depending on externality to find the socially efficient.

Deadweight Loss on externality

Pointing to the socially efficient point, in between the two quantities of SE and PC.

Relationships in Externalities (surplus wise)

Social Surplus is the triangle made by the efficient quantity minus any deadweight loss

Everything not DWL is private TS

Everything not Social Surplus is total external cost

Private TS - total external cost = social surplus