Unit 7: Public Finance, Public Choice, and the Environment
In this unit, we explore the role of the government in producing those goods and services that the market system is unable to produce in an efficient way, like police and emergency services. The study of the environment is also covered in this unit with particular attention to public solutions to environmental problems. The rational voter is also studied in this unit for understanding how public choices are made. Lastly, the Coase Theorem is covered to learn how property rights can be defined as tool for solving environmental problems or other market failures.
Completing this unit should take you approximately 9 hours.
Upon successful completion of this unit, you will be able to:
- explain how government intervention can solve market failures of public goods;
- explain how governments redistribute income through transfer payments;
- differentiate between regressive, proportional, and progressive taxes;
- explain how tax incidence relates to the model of demand and supply
- explain public choice theory and how the rational voter conducts cost-benefit analyses of public issues;
- apply marginal benefit and marginal cost analysis to show how society can achieve efficient solutions to environmental problems; and
- explain the Coase theorem and the conditions needed to achieve efficient outcomes in a property market;
7.1: Public Finance and Public Choice
Read this chapter to learn how the government provides goods and services in the economy to alleviate problems of the market system.
Read this chapter as it explains public choice theory and how the rational voter conducts cost-benefit analyses of public issues. Be sure to click through to read sections 18.1 to 18.3.
7.2: Environmental Economics
Read this chapter to apply marginal benefit and marginal cost analysis to show how society can achieve efficient solutions to environmental problems.
Study this brief chapter on economic resources which provide examples of the concepts discussed in this subunit.
Read the 6 sections of this chapter on resource markets, including topics such as demand, supply, and price ceilings and floors.
Read this chapter to learn more about the different types of environmental solutions. Recall that a negative externality from producing is usually environmental pollution. Be sure to click through to read sections 12.1 to 12.6.
7.3: Coase Theorem
Read this original piece of literature written by James M. Buchanan, who explains the Coase Theory.
Read this section about how to apply the Coase Theorem to solve environmental problems.
Read this section to learn more about how permits and the Coase theorem can be applied to solve environmental problems by defining user and property rights in society. Make sure to answer the "Try It" questions.