Chapter 10

Chapter 10 was very dense. While all the concepts introduced make sense, there’s a lot to them. Chapter 10 focuses on externalities, which are the external benefits and/or cost to society a market will have, in the big picture, but is also the uncompensated impact on one person’s actions on the well-being of a bystander. A negative externality means that the bystander pays for the impact (e.g. pollution caused by big factories) and a positive externality means the bystander benefits from the impact (e.g. education creates well-educated neighbors and societal advances). In dealing with both positive and negative externalities, the government can take an active role to reduce the negative or enhance the positive externalities through subsidies or regulation and corrective taxes. For regulations, I wonder whether price ceilings and floors would either fall under it or correlate, or because they do not deal with externalities directly they are considered completely separate? While I understand that corrective taxes are better, in that case, would those taxes still create a deadweight, or would the shrinkage of the market be considered only beneficial to society and therefore not be considered? And with tradable permits, does the idea only fall under pollution, or would other substances be considered for allowing permits? Also trading permits is still a hazy idea to be just because of my more liberal views, but in either case, could this eventually lead to a decline in the amount of pollution or would it probably just stay capped at its max allowed amount?