Describe the causes of the externality associated with the production variable, and how they generate profits but also create the harm to others

Published by Jeannie R. Ferrell

Nov 18, 2022


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Introduction of the problem (5%)
What is the problem situation in your case, that involves an external costs problem
What kind of “external costs” and “private costs” are you considering in your analysis
Make sure you clearly demonstrate that this involves an externality using the very definition of it
Setup of the “external costs” graphical model (25%)
Describe the “production” variable in the horizontal axis and how it is measured (units) and why this variable is associated with private benefits or profits for the entity causing the externality.
Describe the causes of the externality associated with the production variable, and how they generate profits but also create the harm to others
Identify the human groups that suffer the harm from the economic activity but do not participate in the production decision
Describe the economic components of the different curves or private, external and social costs. That is, what exact reasons are being included in these cost curves
Provide a graphical representation of the different curves, including the market price of the produced good or service, the private and social optimality points, and the areas involved in your economic reasoning
Economic analysis of the “external costs” problem: private vs social optimality (25%)
Discuss the difference between the private optimal solution and the social optimal solution and why the two solutions diverge, including the economic incentives for the difference
Using the areas under the curves, the text and graphs include a demonstration of each optimality (private and social)
Discuss a possible bargaining solution using Coase’s approach (25%)
Demonstrate, using your graphical model, that a Coasian bargaining Pareto efficient solution could emerge from these two parties. Make sure that you discuss the conditions under which solution could emerge and why the bargaining solution would be a Pareto improvement.
Discuss how in reality the distribution of power between the two parties could affect the possibility of such bargaining solution. Use your graphical model to show how an unequal distribution of power could shift the solution towards one or the other party.
Conclusion (10%)
Discuss the implications of your analysis and what barriers associated with power distribution between those causing the externality and those suffering it would affect the possibility of society to reach a socially optimal solution.
6. Good use of references, grammar, spelling, will account for the remaining 10% of the grade.
Length: I will strongly suggest to write this in no more than 2,500 words (around 5 pages max).


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