In the market for retail gasoline (or electricity for homes), describe as exhaustively (pardon the pun) as possible the benefits buyers get and the sources of the sellers’ costs.
(Answer the 3 questions after reading the 3 sources that provided in introduction)
Introduction:
As this week’s lectures lay out, market equilibrium is where the marginal cost to producers of a good equals the marginal benefit to buyers of a good. The socially optimal output of a good is where the marginal cost to society overall equals the marginal benefit to society overall.
Goods for which the marginal cost to society diverges from the marginal cost to sellers represent an extension of the Supply and Demand model, in which the market fails to maximize gains from trade. Markets for most of the familiar kinds of energy, e.g., gas and electricity, may exhibit this property.
Sources:
1. Economists (more or less) agreeing with one another: https://www.npr.org/sections/money/2013/07/12/201502003/episode-472-the-one-page-plan-to-fix-global-warming.
2. Hsiang & Kopp. 2018. “An Economist’s Guide to Climate Change.”
3. Articles about implementation challenges: https://www.realclearpolicy.com/stream/?topic=carbon_tax.
Question:
1. In the market for retail gasoline (or electricity for homes), describe as exhaustively (pardon the pun) as possible the benefits buyers get and the sources of the sellers’ costs.
For gasoline (or electricity): describe costs that are born by someone other than the buyer and seller. Who is (are) the “someone” that bears external costs?
2. Summarize the results of legislative proposals to “price” or tax carbon emissions.
Summarize the political challenges to legislating a “price” (tax) on carbon emissions.
3. Outline a proposal to either:
resolve the challenges in Question 2 and accomplish the pricing of carbon emissions, or
use other (private or government) mechanisms to accomplish the reduction of pollution emissions. Defend your proposal, by comparing it to alternatives and anticipating criticisms of it.
