Positive Consumption Externalities: Policy Responses

Marghi & Emilie

Market Failure

  • Misallocation of resources

Over Allocation

  • Negative Externalities
  • Qm > Qopt

Under Allocation

  • Positive externalities
  • Qm < Qopt

Merit Goods

  • Positive consumption externalities

Demerit Goods

  • Negative consumption externalities

Command Approaches

  • Legislation
  • Advertisement
  • Education
  • Direct government provision (also affects supply)

Command Approaches: Legislation, Advertisement, Education

Evaluation of Command ApproachesĀ 

  • Pros
  • Consequences

Market-Based Policies

  • Direct government provision
  • Provision of subsidies

Market-Based Policies: direct government provision & subsidies

Evaluation of Market-Based Policies

  • Pros
  • Consequences

Questions?

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