Negative Externalities of Consumption as a Market Failure

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12 жыл бұрын

In this lesson we're going to examine a different example of market failure, one in which it is the consumption of a good that creates negative costs for society. In such a market, private consumers of the good benefit more from its consumption than society as a whole. Consider the example of tourists in a beach town who consume too large amounts of alcohol while on their vacation. Such individuals are just enjoying themselves, and probably have a blast getting drunk, but in the process they create lots of trouble for the local community in the beach town.
Want to learn more about economics, or just be ready for an upcoming quiz, test or end of year exam? Jason Welker is available for tutoring, IB internal assessment and extended essay support, and other services to support economics students and teachers. Learn more here! econclassroom.c...

Пікірлер: 47

@varalikajain4926 9 жыл бұрын

Isn't the dead weight loss the triangle between MSB and MSC curves?

@addressrome 7 жыл бұрын

WARNING: The triangle identified in the video as the deadweight loss is incorrect.

@anonemoose102 6 жыл бұрын

explain

@puppykitten4779 6 жыл бұрын

Alex Wang there is two dwl, one is the dwl from market failure the another one is the dwl from the tax collection, the dwl in video is for the tax one

@safwankhan199 4 жыл бұрын

no... the one thats taxed after is the dwl becuz some consumers lose out due to higher price. the one that says external cost is the externality. so he's right

@dianecai2035 4 жыл бұрын

@Aahaan Gogate a good way to remember it is the DWL triangle always points towards the socially optimal quantity

@JasonWelker 12 жыл бұрын

Good question. It's because there are no external production costs in this market. In other words, the MSC = MPC. No reason to have a separate MPC if there are no external costs. The private costs incorporate all the social costs in other words. In fact, I could have just labeled it S=MC.

@AddoWark012326 10 жыл бұрын

You have seriously fixed my balls :D this made no sense before i watched this, thank you so much!

@JasonWelker 12 жыл бұрын

@EonorHarry. Actually it is correct. A positive externality exists when the social benifits are greater than the private benefits. This video is on negative consumption externalities, when social benifits are LESS than private benifits, as shown in the video.

@KM-kg2jg 9 жыл бұрын

this is going to be so useful to my exams. Thank you so much

@JasonWelker 12 жыл бұрын

@mhorman1973. You're right, the video does not consider the external benefits of drinking in tourist resorts. That is because the purpose of this video is to teach the concept of NEGATIVE consumption externalities. Of COURSE there are external benefits of having tourists in town, as you correctly identify. But this lesson was on negative externalities, which is why I focused on those...

@kashlovkaswaga4232 Жыл бұрын

Nice tutorial lecture🫶🫶🫶🫶thanks much

@JasonWelker 12 жыл бұрын

A tax on drivers such a congestion charge would be reflected in a graph for "driving into the city" in which the marginal private cost of driving into the city increases due to the congestion charge. You can't think of this market as having "consumers" and "producers" rather there is "drivers" who face private costs which are lower than the social costs of their behavior. A congestion charge internalizes the external costs of driving, shifting MPC up and reducing the number of people driving.

@slutmonke 12 жыл бұрын

The problem with this is that the "socially optimal" level of a good is subjective and the value people assign to it often varies widely. So in the example of coal electricity, people might be tempted to demand zero coal plants, but they don't consider their own desire for cheap electricity. If they calculated their *true desire*, they'd want more coal use than they realize. This is what creates so many failures in attempts to directly regulate instead of using a market.

@JasonWelker 11 жыл бұрын

By forcing firms to internalize those costs through corrective taxes, permits, or regulation.

@serialglobetrotter 8 жыл бұрын

Sir can you please make a video lesson on MARGINAL UTILITY , BUDGET LINE , INDIFFERENCE CURVE & MARGINAL RATE OF SUBSTITUTION ?

@kinsung1985 12 жыл бұрын

Thank you for the video! I have a question in mind, what happens if the tax in imposed on the consumers rather than the producers e.g. road pricing to deal with the negative externality of traffic congestion? How will that be reflected in the graph?

@Anonymous-si7oc 9 ай бұрын

Taxes are always represented as a left shift in the supply curve

@virtuousjoffrey8022 6 жыл бұрын

@jason welker can do this the other way? taking the Marginal Social Cost(which is more) and then seeing the overproduction.

12 жыл бұрын

What about taxes on consumption. Wouldn’t a Tax in the consumer instead of the producer shift the Demand curve to the left rather than the supply curve??

@bond-king411 9 жыл бұрын

wouldnt the MPC have to be below the MSC in order for there to be no externaliteis

@IgorAherne 12 жыл бұрын

hey! Great video, but wouldn't at 10:50 the shift in MSC to the left bring with that new equilibrium the new socialy optimal quantity of alcohol? Yes, with no doubts, less people will purchaise the alcohol, which, in its place will bring the quantity consumed to the OLD socialy optimal quantity, but isn't ther a new one formed now? Thank you :)

@starphazedboy 12 жыл бұрын

i could kiss you for posting this video! saved my butt!

@yajurrocks 11 жыл бұрын

Why is the difference between MSB and MPB not MEB. I know that the consumption of alcohol is a negative externality, MEC, but in terms of the equation (MSB = MPB + MEB) this doesn't add up, does it? If you could clear up my confusion then I would really appreciate it.

@djgospec127 6 жыл бұрын

Is there the simple of explain for positiv and negativ exsternalities

@grapesoe 10 жыл бұрын

Hello! Thanks for sharing! I find your videos really helpful in my IB course! I have 1 question. I was doing an essay on negative externalizes of consumption on cigarette, is the D=MPB inelastic or elastic in that graph for negative externalizes of consumption? Or does it matter?

@mohammadpourheydarian5877 2 жыл бұрын

A very good question. The more elastic the demand curve the less the tax incidence on the buyer but his point is ignored here because of ceteris paribus concept.

@pendanski 12 жыл бұрын

Why is there no marginal private cost curve on this diagram? Thanks :)

@sophiespyropoulos4802 11 жыл бұрын

This is very helpful :D

@paveeish 7 жыл бұрын

Thank u so much..

@mlnorman1973 12 жыл бұрын

When I say leaves out the benefits, I mean the metrics of the social costs and benefits are not quantified. The producer of the video makes the assumption that the social benefits outweigh the costs and proceeds from there. I dispute this. The total quantity of tourism, a major source of income for the Greek Isles, would likely be lower if alcohol consumption were limited as compared to other holiday destination options. The reduction in tourism would likely outweigh any benefits accrued.

@mznshaa 3 жыл бұрын

sir, i think you have to correct the dead weight loss triangle as people will make your vid as their reference

@lenawooly 10 жыл бұрын

how about the negative externality of the consumption of processed foods ? does this need to be corrected by taxation as well ?

@green777771 10 жыл бұрын

yes it can be...it really depends...or it can be corrected by public health campaigns where people would be increasingly aware of the health concerns that may arise from consuming too much processed food :/

@h3llo968 10 жыл бұрын

thanks!

@mlnorman1973 12 жыл бұрын

The video leaves out the marginal social benefit (MSB) of tourist alcohol consumption. The tourist purchases alcohol, which is sold by locals, presumably for a profit. This profit motive allows for viable business activity, providing jobs for servers, producers, and distributors of alcohol thus reducing unemployment and generating revenue for the host government through consumption, payroll, and other taxes. The video fails to take into account these positive externalities.

@aizazaheer8995 5 жыл бұрын

why are there two different type of diadram for negative externality , the last video was different , i thought that this diagram was for positive not negative

@XPlaneAviation 5 жыл бұрын

Negative externalities of consumption vs production

@skreed101 9 жыл бұрын

i think that's the wrong triangle :/

@yasmin7665 9 жыл бұрын

sarah reed yh it is, it should come from the original q

@ilmarimartin9588 8 жыл бұрын

+sarah reed Yeah its the bottom triangle between Qso-Qe and MSB-MPB. Why is the tax levied in this case? to bring the quantity to social optimum level of market quantity, all other states are inefficient and imply a dwl somewhere in the figure in the onset. The dwl does not first appear after the tax. Getting this wrong is something ive seen among teachers and professors before. Damn triangles :P

@durestudios 9 жыл бұрын

awesome song haha

@ericglock6932 2 жыл бұрын

According to this argument the marginal cost of drunken Brits. is falling: each broken bottle, decibel of noise, and increment of vomit on the streets is less unpleasant than the last. Are you sure that this is right?