Positive Externalities

Although some activities impose costs on third parties other yield benefits. For example consider

education. To a large extent the benefit of education is private. The consumer of education becomes a more productive worker and thus reaps much of the benefit in the from of higher wages. Beyond these private benefits however education also yields positive externality. One externality is that a more educated population leads to more informed voters which means better government for everyone. Another externality is that o more educated population tends to mean lower crime rates. A third externality is that a more educated population may encourage the development and dissemination of technological advances leading to higher productivity and wages for everyone. Because of these three positive externalities a person may prefer to have neighbors who are well educated.

The analysis of positive externalities is similar to the analysis of negative externalities. The demand curve does not reflect the value to society of the good. Because the social value is grater than the private value the social-value curve lies above the demand curve. The optimal quantity is found where the social-value curve and supply curve which represents is costs intersect. Hence the socially optimal quantity is greater than the quantity determined by the private market.

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RENT CONTROL IN THE SHORT RUN AND LONG RUN

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CAN CONGRESS DISTRIBUTE THE BURDEN OF PAYROLL TAX

If you have ever received a paycheck you probably noticed that taxes were deducted from the amount you earned. One ot these taxes is called FICA an acronym for the Federal Insurance Contribution Act. The federal government uses the revenue from the FICA tax pay for Social Security and Medicare the income support and healthcare programs for the elderly. FICA is an example of a payroll tax which is a tax on the wages that firms pay their workers. In 2005 the total FICA tax for the typical worker was of earnings. Who do you think bears the burden of this payroll tax firms or workers. When Congress passed this legislation it tried to mandate a division of the tax burden. According to the law half of the tax is paid by firms and half is paid by workers. That is half of the tax is paid out of firms revenues and half is deducted from workers paychecks. The amount that shows up as a deduction on your pay stup is the worker contribution. Our analysis of tax incidenc...

The Variety of Demand Curves

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