Microeconomics Diagrams

Welfare loss caused by price ceiling

Price floor with government purchases and welfare loss

Specific tax diagram + welfare loss

welfare loss is triangle pointing to optimum

Subsidy diagram + welfare loss

triangle pointing to optimum

Piguovian tax and Carbon tax diagram

The introduction of a carbon tax helps shift the MPC curve to the MSC curve.

However, as there are alternatives to carbon emitting fossil fuels, which do not get affected from carbon tax, a lot of firms may switch to those alternatives.

Hence, firms still pollute the environment, but by a lower factor, which is represented by the shift from

to MSC1 to MSC2. (EXTERNAL COST DECREASES)

Therefore the externality may not be fully corrected, but rather reduced.

Market for tradeable permit diagram

As an economy grows and the firms increase their output levels,

the demand for permits is likely to increase, as shown by

the rightward shift of the demand curve from D1 to D2.

With supply fixed, the price of permits increases from

P1 to P2.

Legislation (mandate consumption) / advertising diagram

MPB to MSC

Negative consumption externality diagram

Correcting positive cosumption externality with government provision / subsidy