Mostly summarized from Gregory Mankiw’s Principles of Economics, 5th Ed.

PART 4 The Economics of the Public Sector

Chapter 10 of 36 Externalities  

Section 6 of 19

In the case of pollution externality, free market inefficiency occurs because free market equilibrium includes only the private costs of production with little or no concern about pollution.

Per Figure 2 one way for the social planner to achieve the optimum equilibrium would be to tax aluminum producers B – A amount for each ton of aluminum sold.

The tax shifts the supply curve for aluminum upward by the size of the tax.

If the tax accurately reflects the external cost of pollution released into the atmosphere the new supply curve would be the full social-cost curve.

In the new optimum equilibrium aluminum producers produce the socially optimal quantity of aluminum Qoptimum.

The use of such a tax is called “internalizing the externality.”

With the tax consumers of aluminum demand a smaller quantity because of the new higher after-tax price and therefore producers produce less.

… …

producers produce less

seisan-sha seisan-ryō herasu

生産者生産量減らす


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