Learn Before
The Role and Limitations of Quasi-Linear Preferences in Externality Models
Marginal External Cost in a General Utility Model
In a general utility model where preferences are not necessarily quasi-linear, the marginal external cost (MEC) is the marginal reduction in an individual's utility caused by an incremental increase in the externality-producing activity (Q). Mathematically, it is expressed as . A key distinction from quasi-linear models is that this MEC is generally a function of both the activity level (Q) and the affected individual's other income (). This means, for instance, that the marginal harm experienced by fishermen from pollution may vary depending on whether their other income is high or low.
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Introduction to Microeconomics Course
Related
Effect of Quasi-Linearity on the Number of Pareto-Efficient Outcomes
Pareto Inefficiency Example: Banana Plantations and Fishermen
Application of Quasi-Linear Preferences in the Weevokil Model
Application of Quasi-Linear Preferences to Air Pollution and Its Limitations
Graphical Representation of the Banana Market with Negative Externalities (Figure 10.3)
Effect of Quasi-Linearity on Payoff Maximization and Marginal Costs
Independence of the Pareto-Efficient Quantity (Q*) from Income Distribution
Marginal External Cost in a General Utility Model
Generality of the Constrained Choice Method for Finding Pareto-Efficient Allocations
Learn After
A chemical plant's operations create runoff that pollutes a downstream river, negatively impacting a community of recreational fishers. A new regional economic development program is enacted, providing a substantial income subsidy to all residents, including the fishers. In a general economic model where the fishers' valuation of a clean river can be influenced by their income, what is the most likely effect of this income subsidy on the Marginal External Cost (MEC) of the pollution?
Income Effects on Marginal External Cost
Evaluating Modeling Assumptions for Externality Policy
Comparing Externality Impacts in Different Economic Contexts
Statement: In a scenario where a factory's air pollution negatively impacts the well-being of nearby residents, if a new policy doubles the residents' income through an unrelated government program, the monetary value of the harm they experience from each additional unit of pollution will necessarily remain unchanged.
In a general economic model where the harm from an externality is evaluated based on an individual's utility, the marginal external cost is recognized as being a function of both the level of the externality-producing activity and the affected individual's ________.
Policy Implications of Income-Dependent External Costs
A resident's well-being is negatively affected by the noise level (Q) from a nearby construction site. In a general utility model where utility depends on both income and noise, assume that 'peace and quiet' is considered a normal good for this resident. If the resident receives a significant, unexpected inheritance that substantially increases their income, how would this change in income be expected to affect their Marginal External Cost (MEC) associated with an additional unit of noise?
Match each economic model assumption with its correct implication for the Marginal External Cost (MEC), which represents the marginal harm from an externality.
An economist observes that a community is willing to pay 150 to avoid the 100th daily freight train. Assuming the community's income remains constant, what does this observation imply about the nature of the marginal external cost (MEC) of the train noise in this context?