Internalizing External Costs

This lecture delves into the concept of internalizing external costs through taxes and subsidies, focusing on the implications for market equilibrium. The instructor explains how a tax equal to the external cost per unit produced can lead to a new market equilibrium with higher prices. The lecture also explores the effects of subsidies on production decisions, highlighting the trade-offs between taxes and subsidies in incentivizing environmentally friendly practices. Additionally, the discussion covers the role of information campaigns in influencing consumer preferences and the importance of considering external benefits in economic decision-making. The lecture concludes by examining measures to reduce external costs through mitigation strategies and the need for appropriate policy instruments to encourage pollution reduction.