Get premium membership and access questions with answers, video lessons as well as revision papers.
(i) Positive Externalities:
A positive externality is something that benefits society, but in such a way that the producer cannot fully profit from the gains made. A few examples of positive externalities are environmental clean-up and research. A cleaner environment certainly benefits society, but does not increase profits for the company responsible for it. Likewise, research and new
technological developments create gains on which the company responsible for them cannot
fully capitalize. Street lighting, etc.
(ii) Negative Externalities:
A negative externality is something that costs the producer nothing, but is costly to society in general. Unfortunately these externalities are much more common. Let's take an example of
pollution. This is a very common negative externality. A company that pollutes loses no
money in doing so, but society must pay heavily to take care of the problem pollution caused.
The problem this creates is that companies do not fully measure the economic costs of their
actions. They do not have to subtract these costs from their revenues; hence profits
inaccurately portray the company's actions as positive. This can lead to inefficiency in the
allocation of resources.
(iii) Fiscal Externalities:
This is whereby the behavior of people affects the cost of some subsidy or alters the revenues from some tax as externalities. Fiscal externalities do not necessarily imply any inefficiency, and when there is inefficiency, it is the result of the pre-existing policy. An example is smoking; this imposes costs on taxpayers due to the existence of subsidized medical care. In this case the medical care subsidy creates the fiscal externality.
However, when there is inefficiency, the nature and magnitude of the fiscal externality is not a reliable guide to the appropriate corrective policy. Like in the above example, it will usually be best to modify the pre-existing policy (the medical care subsidy) rather than tax smoking.
Faimus answered the question on February 25, 2019 at 19:52
- How do distortionary taxes cause market failure(Solved)
How do distortionary taxes cause market failure
Date posted: February 25, 2019. Answers (1)
- Non-excludability property of pure public goods brings about the free rider problem. Explain(Solved)
Non-excludability property of pure public goods brings about the free rider problem. Explain
Date posted: February 25, 2019. Answers (1)
- What is a public good?(Solved)
What is a public good?
Date posted: February 25, 2019. Answers (1)
- Due to lack of information the government imposes distortionary taxes. What are the effects of such taxes?(Solved)
Due to lack of information the government imposes distortionary taxes. What are the effects of such taxes?
Date posted: February 25, 2019. Answers (1)
- Explain how the following cause non market failure (i) Limited control over market responses (ii) Limited control over bureaucracy (iii) Limitations imposed by the political process(Solved)
Explain how the following cause non market failure
(i) Limited control over market responses
(ii) Limited control over bureaucracy
(iii) Limitations imposed by the political process
Date posted: February 25, 2019. Answers (1)
- What are the causes of government failure?(Solved)
What are the causes of government failure?
Date posted: February 25, 2019. Answers (1)
- Briefly describe what is meant by non-market failure(Solved)
Briefly describe was is meant by non-market failure
Date posted: February 25, 2019. Answers (1)
- What are the functions of the government (public policy objective)(Solved)
What are the functions of the government (public policy objective)
Date posted: February 25, 2019. Answers (1)
- How does the government redistribute income?(Solved)
How does the government redistribute income?
Date posted: February 25, 2019. Answers (1)
- What is the role of the government in the market?(Solved)
What is the role of the government in the market
Date posted: February 25, 2019. Answers (1)
- Briefly explain income distribution as a source of market failure(Solved)
Briefly explain income distribution as a source of market failure
Date posted: February 25, 2019. Answers (1)
- What are the effects and the contribution of the excess tax burden to market failure?(Solved)
What are the effects and the contribution of the excess tax burden to market failure?
Date posted: February 25, 2019. Answers (1)
- Taxation leads to the excess tax burden. Briefly explain what the excess tax burden refers to.(Solved)
Taxation leads to the excess tax burden. Briefly explain what the excess tax burden refers to.
Date posted: February 25, 2019. Answers (1)
- How does tax system cause market failure?(Solved)
How does tax system cause market failure?
Date posted: February 25, 2019. Answers (1)
- What is meant by asymmetric information?(Solved)
What is meant by asymmetric information?
Date posted: February 25, 2019. Answers (1)
- In what cases do the positive and negative externalities occur?(Solved)
In what cases do the positive and negative externalities occur?
Date posted: February 25, 2019. Answers (1)
- What are the disadvantages of the paternalistic role of the government (Solved)
What are the disadvantages of the paternalistic role of the government
Date posted: February 25, 2019. Answers (1)
- Define the paternalistic role of the government and briefly define some of its advantages(Solved)
Define the paternalistic role of the government and briefly define some of its advantages
Date posted: February 25, 2019. Answers (1)
- Define any three sources of market failure(Solved)
Define any three sources of market failure
Date posted: February 25, 2019. Answers (1)
- Compare and contrast country risk analysis with exchange rate volatility
(Solved)
Compare and contrast country risk analysis with exchange rate volatility
Date posted: February 16, 2019. Answers (1)