External effects and the government intervenes

• Economie
• Middelbare school
• vwo
• Leerjaar 3

Economics

External effects

Excise duty

External effects

A side-effect of the market (consequence of the supply or demand for which nobody pays)

External effects Aviation:

• Noise
• Pollution--> CO2 emissions
• Effects the health of citizens near the airport (negatively)

What is a good example of an external effect

1. Fertilisers used by farmers polute ground water
2. Syrup waffle bakers sell leftovers for € 0.25
3. Cinemagoers enjoy the beatifull images of the film
4. A disco offers local residents half-price entry tickets

The government intervenes

Excise duty = tax on products that cause external effects

Alcoholic drinks (diseases/ domestic violence --> health costs)

Sigarettes (diseases --> health costs

Petrol (CO2 emissions, polution)

The excise tax is the difference between the two supply curves: $ 4

Calculate the change in total consumption of a bottles of rum as a percentage 

The change as a percentage:

(new-old)/old X 100 %

(400 - 500)/500 X 100 % = 20 %. Calculate the total tax revenue

 Calculate the total tax revenue

$ 4 X 400 = $ 1,600

 Government has reached it's goals:

Increase in price of 40 %

Decrease in consumption of 20 %

Tax revenue can be used for treatment and prevention of abuse of alcohol

Other means of intervention: road tax

People who have cars that are environmentally friendly pay less road tax (electronic cars 0 %)

Owners of cars that are environmentally unfriendly pay more road tax

Do

Exercise 3 - 8 section 2         or:

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economie -->

malmberg link leerling licentie -->

Chapter 6

Section 2

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