English Subtitles for Micro Unit 6 Summary (Complete)- Market Failures and the Role of the Government

Subtitles / Closed Captions - English

hey con students this<font color="#E5E5E5"> is Jacob Clifford</font>

welcome to microeconomics unit<font color="#CCCCCC"> six</font> market failures in<font color="#CCCCCC"> the role of</font> government this is a last unit microeconomics so it's time to<font color="#CCCCCC"> go get</font> <font color="#E5E5E5">the ultimate review packet you watch the</font> videos<font color="#CCCCCC"> fellows pack it out it's</font><font color="#E5E5E5"> going to</font>

help you learn the stuff it helps find <font color="#CCCCCC">ACDC econ so thanks</font><font color="#E5E5E5"> for getting the pack</font> also right now is a<font color="#CCCCCC"> good time to</font> subscribe<font color="#E5E5E5"> and tell YouTube and everybody</font> else in the world that these<font color="#E5E5E5"> videos are</font> helpful and they're helping you learn

economics<font color="#CCCCCC"> okay so thank you so much for</font> subscribing get the packet it's going to help you learn economics if you've already watched this whole video you can move<font color="#E5E5E5"> ahead by clicking on one of these</font> we're<font color="#E5E5E5"> going to start off I talked about</font>

<font color="#E5E5E5">market failures what it is and when the</font> government needs<font color="#CCCCCC"> to get</font><font color="#E5E5E5"> involved then</font> i'll talk about public goods the definition then how does the government figure out how many public goods to buy then<font color="#CCCCCC"> i'll talk about externalities they</font>

don't<font color="#E5E5E5"> talk about antitrust laws and</font> finish off with income distribution and the<font color="#CCCCCC"> lorenz curve as always keep in mind</font> these videos are a summary<font color="#E5E5E5"> I'm going</font> pretty quick I'm covering the concepts you need to<font color="#E5E5E5"> get the packet to slow down</font>

and practice make sure actually<font color="#E5E5E5"> getting</font> it the great thing about unit<font color="#CCCCCC"> 6 is it's</font> relatively short and it covers a lot of the same concepts you learn<font color="#E5E5E5"> Mac in</font> previous units for example we retire a lot about supply and demand with the

graph looks like and add this new idea we talk about externalities also there's less grass than in previous units in previous unit you learned about monopolies and prices criminales and monopolist competition and<font color="#E5E5E5"> cost</font><font color="#CCCCCC"> kurz</font>

there's not<font color="#CCCCCC"> a lot going on in</font><font color="#E5E5E5"> this unit</font> there's only two main graphs of positive externality and a negative externality i'll talk about both in this<font color="#E5E5E5"> video back</font> in a<font color="#CCCCCC"> one you learn</font><font color="#E5E5E5"> about the idea of</font> capitalism a free<font color="#E5E5E5"> market system where</font>

individuals own resources and they produce things because they want<font color="#E5E5E5"> to make</font> profit and they produce things<font color="#E5E5E5"> that you</font> want right they can't make themselves better off without making<font color="#CCCCCC"> you better off</font> now we're going<font color="#E5E5E5"> to talk about situations</font>

when that market system doesn't work when there's a market failure so a market failure is when the free market fails to produce what society wants and they're not allocated<font color="#E5E5E5"> Lee efficient so</font> private firms don't<font color="#E5E5E5"> produce what we want</font>

who has to step in well the government <font color="#E5E5E5">so in this situation the government</font> steps in to help allocate resources make sure we're actually doing we need for society but the government is be careful <font color="#CCCCCC">about making perverse incentives now</font><font color="#E5E5E5"> I</font>

made a video talk about perverse incentives it's<font color="#E5E5E5"> really good it talks</font> about when the government does something and<font color="#E5E5E5"> it turns out actually making the</font> situation worse or create the wrong incentives and mess of the<font color="#E5E5E5"> system</font>

economist in general they don't<font color="#E5E5E5"> trust</font> the government right in general they don't think the government<font color="#CCCCCC"> can solve all</font> our problems the government can solve some of our problems but not all of<font color="#CCCCCC"> our</font> problems<font color="#E5E5E5"> in this unit you're going to</font>

find<font color="#E5E5E5"> out where the government needs to</font> step in and what sometimes government is to step out so let's<font color="#E5E5E5"> start off</font><font color="#CCCCCC"> with</font> public goods now if there was no government would have schools and<font color="#CCCCCC"> parts and freeways well</font>

yes they would exist except maybe different you'd have to pay to use them they<font color="#E5E5E5"> wouldn't be provided to everybody</font> for free in our system though we usually have the government provide schools and <font color="#E5E5E5">parks and freeways because that's what</font>

the public sector does so the public <font color="#E5E5E5">sector is the part of the economy that's</font> primarily controlled by the government the private sector is when there's individual firms who are profit-seeking firms producing stuff to maximize profit

it's a big<font color="#CCCCCC"> question here</font><font color="#E5E5E5"> is why must the</font> government provide things like parks and freeways and<font color="#CCCCCC"> streetlights why can't</font> private firms to be expect to do<font color="#CCCCCC"> that</font> right<font color="#E5E5E5"> the free market fails to produce</font> <font color="#CCCCCC">streetlights why well it's because</font><font color="#E5E5E5"> those</font>

firms can't make profit right it's impractical for private firms to produce things<font color="#E5E5E5"> that everyone can use because</font> they can't make any money off it the reason why<font color="#E5E5E5"> is because of Free Riders the</font> free rider problem is when individuals

benefit without actually paying so if you provide<font color="#CCCCCC"> streetlights to everyone</font> well people<font color="#CCCCCC"> will benefit and they don't</font> <font color="#CCCCCC">have to</font><font color="#E5E5E5"> pay you can walk around say</font> listen give<font color="#E5E5E5"> me your money for making the</font> street<font color="#E5E5E5"> like they don't have</font><font color="#CCCCCC"> to pay if</font>

<font color="#E5E5E5">they don't have to pay</font><font color="#CCCCCC"> it well no one's</font> really going to pay but<font color="#E5E5E5"> why is that so</font> bad we'll take a look<font color="#E5E5E5"> at this picture</font> let's assume that<font color="#CCCCCC"> this train is empty on</font> the inside but all<font color="#E5E5E5"> these people have</font> jumped on it for free right there are

literally<font color="#CCCCCC"> Free Riders</font><font color="#E5E5E5"> in this case why</font> is this so bad for the economy well the reason why is because the company<font color="#CCCCCC"> that</font> runs<font color="#E5E5E5"> the trains doesn't get any profit</font> if people can ride the train for free if they<font color="#E5E5E5"> don't make any profit that means</font>

they don't cover their<font color="#E5E5E5"> costs and that</font> means<font color="#E5E5E5"> that they're going to go out</font><font color="#CCCCCC"> of</font> business so essential services like trains would actually be under produced we wouldn't have<font color="#CCCCCC"> enough trains for</font> society this<font color="#E5E5E5"> is a bad thing we don't</font>

<font color="#E5E5E5">want free riders now how does the</font> government solve this problem well the government<font color="#E5E5E5"> can either enforce the laws</font> better and make sure<font color="#E5E5E5"> people are punished</font> for breaking<font color="#E5E5E5"> the rules or they can</font> actually subsidize it or make it for

free for everybody but<font color="#E5E5E5"> remember it's not</font> free remember public good aren't free the government's going to fund them through taxes so the government<font color="#CCCCCC"> provides</font> a public good for everybody by saying it's important for everyone to pay into

this they force everyone to pay taxes turn<font color="#CCCCCC"> around and pay for</font><font color="#E5E5E5"> the good and of</font> course that's<font color="#E5E5E5"> what the debate happens</font> should trains be provided for everybody if not trains how about planes if not planes how about cars should<font color="#E5E5E5"> the</font>

government provide everybody<font color="#CCCCCC"> a car well</font> those are<font color="#E5E5E5"> the questions that economists</font> and politicians start asking what<font color="#CCCCCC"> is so</font> important that we have to provide<font color="#CCCCCC"> for</font> everyone and that's what a lot of the debate is when it comes to Republicans

and Democrats and conservative and liberals when it comes to the I me for our<font color="#E5E5E5"> purposes it's important</font> understand that there are some goods that the free market just won't produce things we really really need and we

really really<font color="#CCCCCC"> want but the free marks</font> <font color="#E5E5E5">not gonna make them like street lights</font> so the government steps in and makes<font color="#CCCCCC"> it</font> yeah public good is not just a good<font color="#E5E5E5"> or a</font> service that the government pays for in fact that is two criteria or two things

<font color="#E5E5E5">you have to have to be a true public</font> good the first criteria is non exclusion this means that you cannot exclude people who don't pay from enjoying the benefits so for<font color="#E5E5E5"> example national</font><font color="#CCCCCC"> offense</font> or it doesn't matter if you pay your

taxes or you don't pay taxes you still get<font color="#CCCCCC"> the benefit of</font><font color="#E5E5E5"> National Defense so</font> that is<font color="#E5E5E5"> the idea of non exclusion</font> national offense definitely has that criteria the second criteria is called shared consumption or non rivalry this

is the idea that one person can use the product<font color="#E5E5E5"> or service and another one can</font> <font color="#E5E5E5">use the same product or service defense</font> is another great example right when i use national fence it benefits<font color="#CCCCCC"> me but</font> when<font color="#E5E5E5"> you use national fenton also</font>

benefits you you don't take<font color="#E5E5E5"> it away from</font> me<font color="#CCCCCC"> when you're using it same thing for</font> like<font color="#E5E5E5"> a city park right if you use your</font> city park<font color="#E5E5E5"> i can use</font><font color="#CCCCCC"> the same part we can</font> all share that product shared consumption non rivalry so there<font color="#CCCCCC"> are</font>

some things that the government provides <font color="#E5E5E5">this not actually a true public good</font> like education so the school you go to if you go to a you know a public school is I definitely<font color="#E5E5E5"> shared consumption right</font> you can use<font color="#E5E5E5"> a teacher the next period</font>

another teacher can be used by another student you get the idea share consumption you can all use<font color="#CCCCCC"> the school</font> but you<font color="#CCCCCC"> can't exclude people from using</font> the<font color="#E5E5E5"> school you just charge tuition so</font> education is not<font color="#E5E5E5"> a true public good by</font>

definition and the same thing<font color="#CCCCCC"> goes for</font> freeways and highways right I can use it <font color="#CCCCCC">you can use it ahead share consumption</font> but<font color="#E5E5E5"> you can exclude</font><font color="#CCCCCC"> people from using</font> highway you just charge a toll but<font color="#E5E5E5"> the</font> big takeaway here is that if<font color="#E5E5E5"> something</font>

has both of these criteria for example national offense you can expect private firms to produce it they can't make any profit if everyone can use it and they can't<font color="#E5E5E5"> exclude people from enjoying the</font> benefits<font color="#E5E5E5"> okay now</font><font color="#CCCCCC"> let's talk about</font><font color="#E5E5E5"> how</font>

the<font color="#E5E5E5"> government decides how many public</font> goes to produce for example in your town how many parks are there so think of how many public parks are out in<font color="#E5E5E5"> your town</font> the government had to make that choice <font color="#CCCCCC">you say let's provide a public park here</font>

or provide a public park here right are there too many are there too few how does the government think about that well there's a concept here it just supply and demand demand for public good <font color="#CCCCCC">is the marginal social benefit that the</font>

the good provides society so how<font color="#E5E5E5"> much</font> benefit does another cart added society and some people can calculate that by figuring out<font color="#CCCCCC"> how</font><font color="#E5E5E5"> much people are willing</font> to pay taxes so how much<font color="#CCCCCC"> is people wind up</font>

paying higher taxes to<font color="#E5E5E5"> get another</font> public part now the<font color="#CCCCCC"> supply of public</font> good is the marginal social<font color="#E5E5E5"> cost what's</font> the additional cost of another part like everything else it's all about marginal analysis right<font color="#CCCCCC"> to the government needs</font>

to look at the additional benefit and the<font color="#E5E5E5"> additional cost of putting in</font> another part or another free way or another take or aircraft carrier so the <font color="#E5E5E5">government's using a version of the most</font> important equation in all of

microeconomics and Marcos MC acceptance with a marginal social benefit equals the marginal social<font color="#E5E5E5"> cost now that you</font> hear the last<font color="#E5E5E5"> you that you should be</font> able to look back and<font color="#CCCCCC"> see how many</font><font color="#E5E5E5"> times</font> you've seen this concept right we're

looking at producing parts you look at that<font color="#E5E5E5"> social benefit versus social cost</font> of producing an additional part we talked about hiring workers back in unit 5 you look the<font color="#E5E5E5"> marginal revenue product</font> and you made sure it equals the marginal

resource<font color="#E5E5E5"> cost back in unit 3</font><font color="#CCCCCC"> & 4</font><font color="#E5E5E5"> we</font> found out you produce where Mr equals MC with a marginal revenue equals marginal cost and of course<font color="#E5E5E5"> you you know eat</font> cookies with a marginal benefit equals a marginal cost to you back<font color="#CCCCCC"> in unit to</font><font color="#E5E5E5"> the</font>

point is it's all the same concepts<font color="#E5E5E5"> in</font> microeconomics it's all marginal analysis so let's<font color="#E5E5E5"> take this concept and</font> let's see<font color="#E5E5E5"> if you can apply it right here</font> i have the marginal willingness to pay in higher taxes for two individuals

let's assume the city has only two individuals Adam and<font color="#E5E5E5"> Jill and then this</font> <font color="#E5E5E5">is</font><font color="#CCCCCC"> the first</font><font color="#E5E5E5"> part Adams want to pay four</font> dollars<font color="#CCCCCC"> gios want to pay five dollars</font> and the second park Adams want to pay an additional three dollars Jill's want to

pay an additional four dollars remember this is the additional willingness to pay so here's the question assume there's only two people in society and each part<font color="#E5E5E5"> costs an additional five</font> dollars so the marginal social cost of

<font color="#E5E5E5">each part is</font><font color="#CCCCCC"> just another five dollars</font> another part another five dollars I know that's not very realistic but if the question is how many parts should be made to figure it out how much is society willing to pay<font color="#CCCCCC"> for the first</font>

<font color="#E5E5E5">part well Jill's want to pay five</font> dollars Adams for so a grand total of nine dollars right and then the second part<font color="#CCCCCC"> is an additional three dollars from</font> Adam<font color="#E5E5E5"> now</font><font color="#CCCCCC"> they're</font><font color="#E5E5E5"> four dollars from Jill</font> that's<font color="#E5E5E5"> another seven dollars or</font>

willingness to pay seven dollars and then the third part 2<font color="#E5E5E5"> plus</font><font color="#CCCCCC"> 3 is</font> additional five if you<font color="#E5E5E5"> figure it out</font> this<font color="#E5E5E5"> is the marginal social benefit this</font> <font color="#E5E5E5">is what society's want to pay for an</font> additional part if I look next to it

there's the marginal social<font color="#E5E5E5"> cost an</font> additional<font color="#CCCCCC"> Park additional five dollars</font> additional part to another five dollars of course the right answer is right here at 33 would give society the most benefit right as long as the marginal

social benefit is a the marginal social<font color="#E5E5E5"> cost again keep in</font> mind that we're not talking about profit here<font color="#E5E5E5"> all right the government's job is</font> not to maximize profit to make more money they're trying<font color="#CCCCCC"> to</font><font color="#E5E5E5"> max my social</font>

happiness so if they produce<font color="#E5E5E5"> for parks</font> then the additional<font color="#CCCCCC"> cost be five dollars</font> but society the only one to pay three additional dollars for<font color="#CCCCCC"> it so you don't</font> want the fourth part society it's like an only want that for of that<font color="#E5E5E5"> part will</font>

stop at three yeah of course<font color="#E5E5E5"> this is</font> super oversimplified there's a lot more going on here in the real world but I want you understand the idea of marginal social benefit and marginal social<font color="#CCCCCC"> costs</font> so the first market failure is<font color="#CCCCCC"> the idea</font>

of public goods right the free market can't produce public goods or it won't produce public goods because<font color="#E5E5E5"> there's no</font> profit in it so the<font color="#CCCCCC"> government has to</font> step in<font color="#E5E5E5"> instead the second market</font> failure is this idea<font color="#E5E5E5"> of externalities</font>

externality is a third person side effect it affects some other person other than the initial decision maker for example if I go<font color="#E5E5E5"> out and</font><font color="#CCCCCC"> buy</font> something I<font color="#E5E5E5"> look at the benefit to</font> myself and<font color="#E5E5E5"> the cost myself and the</font>

seller looks the benefit<font color="#E5E5E5"> in cost to</font> themself and we'd<font color="#CCCCCC"> make a transaction</font> that's great we factor in all the things that<font color="#E5E5E5"> affect us but if that negatively</font> hurts some other person right there's a cost on some other person or<font color="#E5E5E5"> if there's</font>

a benefit on some other person then those cost benefits are not<font color="#E5E5E5"> involved in</font> <font color="#E5E5E5">our transaction great example is the</font> idea of cigarettes when one person goes and decides to smoke they buy cigarettes and the seller cells or cigarettes but

they don't<font color="#E5E5E5"> factor in all those</font> additional costs<font color="#CCCCCC"> and other people people</font> to smell that smoke with<font color="#CCCCCC"> the deal with</font> cigarette butts on the ground and there's secondhand smoke and cancer all that kind of stuff<font color="#CCCCCC"> cheese</font><font color="#E5E5E5"> started put it</font>

away this is an externality right there's external costs and somebody else what happens well the government<font color="#CCCCCC"> comes</font> in in this case they tax firms and get them to produce less cigarettes we have less cigarettes out in society so again

this is a market failure the free market is failing to produce the amount society <font color="#E5E5E5">actually wants their not being allocated</font> <font color="#E5E5E5">Lee efficient so right here it says the</font> free market fails to include those external<font color="#E5E5E5"> costs and external benefits and</font>

without the government getting involved too much or too few<font color="#E5E5E5"> of some goods will</font> be produced to help interesting the concept even better let's do a real quick experiment it only take like one minute so answer<font color="#CCCCCC"> as many of the addition</font>

questions problems I have right here in 10 seconds so<font color="#E5E5E5"> I'm going to give you a</font> list of 12 addition problems add up as <font color="#E5E5E5">many as you possibly can in 10 seconds</font> and<font color="#E5E5E5"> then keep track of your score so</font> ready<font color="#CCCCCC"> and go</font>

stop<font color="#CCCCCC"> alright how did you do you get all</font> 12 I don't know did<font color="#CCCCCC"> you how'd you do so</font> let's<font color="#CCCCCC"> assume that</font><font color="#E5E5E5"> you're actually a</font> producer here in every<font color="#CCCCCC"> single time you</font> add up one of these correctly you get<font color="#E5E5E5"> a</font> hundred dollar so if you did<font color="#E5E5E5"> ten of</font>

these that means you just<font color="#E5E5E5"> earned a</font> thousand dollars of revenue<font color="#CCCCCC"> for your</font> company now let's do it over again this time going<font color="#E5E5E5"> to give you 12 more questions</font> once you add them<font color="#E5E5E5"> up as fast you can you</font> <font color="#E5E5E5">only have</font><font color="#CCCCCC"> ten seconds do it except this</font>

time keep in mind that your factory now has a neighbor that's right<font color="#E5E5E5"> next to it</font> right<font color="#E5E5E5"> I am your neighbor I'm the factory</font> that just moved next door to your factory and let's see how<font color="#E5E5E5"> you guys</font> actually do on this you ready<font color="#E5E5E5"> okay here</font>

<font color="#E5E5E5">we go on your mark get set go okay so</font> how did you do add up<font color="#E5E5E5"> your score and see</font> how you did right so did you get you got <font color="#E5E5E5">five of</font><font color="#CCCCCC"> these that's a hundred dollars</font> for each one so five hundred dollars now what I want you to<font color="#E5E5E5"> notice this is the</font>

idea of an extra tality right I am deciding<font color="#CCCCCC"> to produce and whatever I</font> produce<font color="#E5E5E5"> has noise pollution and it has</font> an effect<font color="#CCCCCC"> on other people you're not</font> part of<font color="#E5E5E5"> my company I'm a completely</font> different company factory<font color="#E5E5E5"> this next door</font>

to yours but<font color="#E5E5E5"> because</font><font color="#CCCCCC"> of my actions it</font> has negative effects on you right that's called a negative externality and in this case<font color="#CCCCCC"> we can actually calculate that</font> negative externality it's the amount of revenue that<font color="#E5E5E5"> you could not have earned</font>

because<font color="#E5E5E5"> of my screaming and yelling and</font> distracting you by the way it's pretty weird if<font color="#CCCCCC"> you actually did better with me</font> screaming and yelling like<font color="#E5E5E5"> imagine if</font> like you're the kind of persons like actually prefer that noise you're a

weirdo so a negative externality also called a spillover cost is when<font color="#E5E5E5"> costs</font> spill over to some other person other than the decision maker right you're making your own product has nothing do with me I make my own product but i have

negative<font color="#CCCCCC"> effects on you right the</font> spillover<font color="#CCCCCC"> costs spill over to other</font> <font color="#E5E5E5">individuals or to society as a whole so</font> here's an example<font color="#E5E5E5"> dorm is a</font><font color="#CCCCCC"> chemical</font> company<font color="#E5E5E5"> that pollutes the air when it</font> produces a good joram only looks at

internal costs right<font color="#E5E5E5"> only facts and</font> here's the cost of labor by fixed<font color="#E5E5E5"> cost</font> my rent my variable<font color="#CCCCCC"> cost here's what</font><font color="#E5E5E5"> I</font> look at when I<font color="#E5E5E5"> produce stuff they ignore</font> those external costs in this case the external<font color="#CCCCCC"> cost</font><font color="#E5E5E5"> of polluting a local</font><font color="#CCCCCC"> river</font>

so the firm's marginal cost curve is their supply curve but it's in<font color="#E5E5E5"> the wrong</font> spot when the firm's factors in those external costs they should realize your costs are<font color="#E5E5E5"> actually a</font><font color="#CCCCCC"> lot</font> iron so who needs to step in well the

government<font color="#E5E5E5"> the government can come in</font> and they'll packs that producer<font color="#CCCCCC"> and</font> given to produce less or do something else<font color="#E5E5E5"> that'll prevent them from polluting</font> the river and having a cost and other people now if you've never<font color="#CCCCCC"> seen it</font>

there's a great video that<font color="#E5E5E5"> talks about</font> this concept even better it's right here if you're studying<font color="#E5E5E5"> for a test right now</font> you got<font color="#CCCCCC"> to your tests and then study for</font> your test but we got<font color="#CCCCCC"> a lecture</font><font color="#E5E5E5"> time you</font> got like five minutes take a look<font color="#E5E5E5"> at</font>

this video it's hilarious this guy named <font color="#E5E5E5">Bubb rubb and he's talking about this</font> thing called<font color="#E5E5E5"> whistle tips it's a</font><font color="#CCCCCC"> YouTube</font> video click right here watch this video the point is at the very end of video there's this guy who's installing these

things called whistle tips right he's the garage owner he's putting in mufflers and he says this right here my business is to sell pipes so I have to sell whatever people<font color="#CCCCCC"> want so</font><font color="#E5E5E5"> whatever</font> people want i'll sell<font color="#CCCCCC"> it right he knows</font>

<font color="#E5E5E5">that there's this negative effect on</font> society but he says you know<font color="#CCCCCC"> what I do</font> <font color="#CCCCCC">what's the free market tells me to do I</font> don't factor in these additional costs <font color="#CCCCCC">on society is a great example of</font> externalities okay now it's time<font color="#CCCCCC"> to talk</font>

<font color="#CCCCCC">about the grass looks like for negative</font> externality so we have supply and demand right here we've got<font color="#CCCCCC"> a demand curve</font> which is<font color="#E5E5E5"> the marginal social benefit for</font> smoking cigarettes and we have the marginal private cost of producing

cigarettes so this is the producers that make cigarettes that's the cost they factor in not any external<font color="#E5E5E5"> costs well</font> their marginal private cost is in the <font color="#E5E5E5">wrong spot they're not factoring in</font> these social costs and so if they did

their marginal social costs would be here this would<font color="#E5E5E5"> be their private cost</font> plus the externality would give you the <font color="#E5E5E5">marginal social cost the problem here is</font> it Q free market down here it's producing the wrong quantity<font color="#E5E5E5"> this is the</font>

market failure the free markets not producing the quantity socially optimal so right<font color="#E5E5E5"> here at the quantity free</font> market the marginal social benefit is less than marginal social<font color="#CCCCCC"> cost right you</font> never want to produce when the

additional<font color="#CCCCCC"> cost on society is great in</font> the benefit society you want to produce what they equal with a marginal social benefit equals marginal social cost which is right here but the free markets not<font color="#CCCCCC"> their overproducing so this is</font><font color="#E5E5E5"> the</font>

overproduction of cigarettes in the free market so you also<font color="#E5E5E5"> see the</font><font color="#CCCCCC"> idea of</font> deadweight loss these are all units that should never have been<font color="#E5E5E5"> produced where</font> the cost is greater than<font color="#E5E5E5"> the benefit so</font> the government<font color="#E5E5E5"> should step in but the</font>

question is how should<font color="#E5E5E5"> the government</font> step in what should they do well they can put some sort of regulation they could ban cigarettes they could say you can always smoke a certain packs of cigarettes but what they do most of the

time is they put on an excise tax<font color="#CCCCCC"> now</font> you learn this concept all the way<font color="#E5E5E5"> back</font> in unit 2 this<font color="#E5E5E5"> is the idea of putting a</font> / good attacks on a producer that<font color="#E5E5E5"> gives</font> <font color="#E5E5E5">them to produce less so you tax the</font> producers supply curve would shift<font color="#E5E5E5"> to</font>

the left and but it's now at right here now the marginal social cost equals a marginal private cost and they're going <font color="#E5E5E5">to produce when the marginal social cost</font> equals of marginal social benefit <font color="#E5E5E5">they're gonna prove the quantity that's</font>

<font color="#E5E5E5">socially optimal notice there is no</font> deadweight loss the government's not causing deadweight loss in<font color="#E5E5E5"> this case the</font> <font color="#CCCCCC">government is fixing deadweight loss now</font> <font color="#E5E5E5">I'm gonna say that again because</font><font color="#CCCCCC"> a lot</font> of students get confused on this back

unit two dead weight loss was in a <font color="#E5E5E5">different spot than it is now so take a</font> look right here right here we<font color="#CCCCCC"> have what</font> we learn back to unit<font color="#CCCCCC"> two here</font><font color="#E5E5E5"> is a</font> market for<font color="#CCCCCC"> a product that shouldn't be</font> taxed right there's no negative

externalities there's nothing bad about this product whatsoever like milk<font color="#CCCCCC"> and so</font> when the government taxes it the dead weight loss<font color="#CCCCCC"> will be right here right we</font> should be producing more but the government's getting us to produce less

no over here is a negative externality <font color="#CCCCCC">Negron allottee we're producing too much</font> right we're producing too much cigarettes the<font color="#CCCCCC"> government savella crap</font> there's this dead weight loss so when the government taxes it the debit loss

would disappear so again there's two different scenarios here this one when there's a tax it's causing a deadweight loss in this situation when there's a tax it's actually<font color="#CCCCCC"> getting rid of that</font> deadweight loss and of course there's

also positive externalities when there's spillover benefits to some<font color="#CCCCCC"> other person</font> or society so if<font color="#CCCCCC"> situation results in a</font> benefit to some other person other than the decision maker so<font color="#E5E5E5"> I make a choice</font> <font color="#E5E5E5">buy something but benefit somebody else</font>

so a great example is flu vaccines education home renovations all great things an<font color="#E5E5E5"> example right here and mom</font> decides get a flu shot for her child no the mom gets a flu shot the she factors in the benefit to her family<font color="#E5E5E5"> and herself</font>

right her child of course so my family's not going to get sick we got a flu shot there we go but they might not<font color="#E5E5E5"> factor in</font> the additional benefit on the rest<font color="#E5E5E5"> of</font> society right they have a kindergartener and that kindergartners not going to get

the<font color="#E5E5E5"> other kids in the class sick so she</font> ignores those social benefits of a healthier<font color="#E5E5E5"> society private a marginal</font> benefit that's our demand curve that's <font color="#E5E5E5">what she's willing to pay if you factor</font> in those external<font color="#E5E5E5"> benefits than her</font>

marginal social benefit should be higher so she should be<font color="#E5E5E5"> willing to pay more if</font> there's other people who can benefit from this decision so who steps in well the government<font color="#E5E5E5"> in this case the</font> <font color="#CCCCCC">government can subsidize flu shots</font><font color="#E5E5E5"> so</font>

here comes the graph we got supply and demand again we're<font color="#CCCCCC"> looking at flu shots</font> we've got the marginal private benefit which is the<font color="#E5E5E5"> demand curve her</font> willingness to buy these<font color="#CCCCCC"> flu shots and</font> other moms as well

if you have the supply curve which<font color="#CCCCCC"> is</font> the marginal social<font color="#E5E5E5"> cost there's no</font> additional cost on society in this case that<font color="#E5E5E5"> we're just going</font><font color="#CCCCCC"> to look at the</font> benefits now<font color="#CCCCCC"> if we're talking about</font> benefits we're talking about demand so

the marginal private benefit does not include the<font color="#E5E5E5"> additional benefits on</font> society but<font color="#E5E5E5"> if you didn't factor those</font> in then the marginal social benefit should be further out right she'd be willing to<font color="#CCCCCC"> be should be</font><font color="#E5E5E5"> willing to pay</font>

more to for these flu shots<font color="#E5E5E5"> so the</font> result is a market failure we're not producing the amount society actually <font color="#E5E5E5">wants we're under producing flu shots in</font> this situation you can see the marginal social benefit is greater than the

<font color="#E5E5E5">marginal social cost at the quantity</font> free market right the free market saying produce more we value these more than it costs<font color="#CCCCCC"> to produce them please make more</font> so the free markets not produced in the right quantity at all and again we have

deadweight loss these are all units that we should produce but we're not producing so at the quantity free market or quantity<font color="#E5E5E5"> FM we are under producing we</font> should be producing the quantity optimal all those units that aren't being

produced are all showing this idea of deadweight loss so what should<font color="#E5E5E5"> we do</font> well<font color="#E5E5E5"> the government should step in to</font> fix the sexuality in this case they should subsidize so if the government subsidizes individuals they send a check

to the mom here you go here's another five dollars go<font color="#E5E5E5"> buy flu shots and she</font> does that or the government does that to all<font color="#CCCCCC"> the other moms then the demand curve</font> would shift the right right<font color="#CCCCCC"> there be</font> willing to pay more because now they

have you know five dollars off so now demand curve shifts the right the marginal social benefit would equal to marginal private benefit and then the market we create the quantity so it's the optimal<font color="#CCCCCC"> the amount</font><font color="#E5E5E5"> that we</font><font color="#CCCCCC"> actually</font>

want produced<font color="#E5E5E5"> okay now is the perfect</font> time to take out the<font color="#E5E5E5"> ultimate review</font> packet I've got a positive<font color="#E5E5E5"> and negative</font> externality and some other questions for you draw those graphs don't watch the video draw those graphs see if you can

shade in that deadweight loss label this quantity free market the quantity socially optimal make sure<font color="#CCCCCC"> you can draw</font> these graphs and make sure interests out the<font color="#E5E5E5"> government should do to fix the</font> problem now if you're<font color="#E5E5E5"> really into</font><font color="#CCCCCC"> this</font>

stuff there's actually a whole branch of economics called environmental economics <font color="#CCCCCC">that jumps into these ideas so we</font><font color="#E5E5E5"> talk</font> <font color="#CCCCCC">about negative</font><font color="#E5E5E5"> externalities and</font> <font color="#E5E5E5">pollution that's all economics so take a</font> look<font color="#E5E5E5"> at the crash course video I made</font>

about environmental economics it'll help you learn about<font color="#E5E5E5"> that concept in that</font> video is another concept<font color="#E5E5E5"> i'ma tell you</font> right now<font color="#E5E5E5"> but watch this if you have</font> <font color="#E5E5E5">more time</font><font color="#CCCCCC"> because it's great</font><font color="#E5E5E5"> concept I</font> want to show you is<font color="#E5E5E5"> this idea of</font><font color="#CCCCCC"> the</font>

tragedy of the Commons so good that are <font color="#E5E5E5">available to everyone things that are</font> common that everyone owns are more likely to be polluted or taken advantage of now the reason why is<font color="#CCCCCC"> because there's no</font>

monetary incentive to use them efficiently for example when it comes to like overfishing in a river right so people just<font color="#E5E5E5"> take as many fish out of</font> river as possible and and they'll keep doing that they<font color="#E5E5E5"> won't allow them to</font>

spawn why because even though they know that's<font color="#E5E5E5"> bad the reason why is because</font> there's an incentive<font color="#CCCCCC"> to take as much</font> fish as you can so if<font color="#E5E5E5"> I don't</font><font color="#CCCCCC"> take the</font> fish out and go sell them somebody else is going<font color="#CCCCCC"> to take the fish and they're</font>

gonna sound so<font color="#E5E5E5"> I might as well do it so</font> this is<font color="#CCCCCC"> the concept of the tragedy the</font> <font color="#CCCCCC">comments right things that are common to</font> everyone that everyone owns are more likely to be exploited<font color="#E5E5E5"> okay we've</font> covered to the market failures public

goods and externalities now this next one<font color="#E5E5E5"> is really fast you've already</font> learned everything about monopolies now let's talk about antitrust laws <font color="#E5E5E5">antitrust laws are laws to promote</font> competition and prevent monopolies it's

that simple night back in unit 4 you learn how to<font color="#E5E5E5"> draw</font><font color="#CCCCCC"> monopoly and most</font> importantly you learn why it's bad<font color="#E5E5E5"> a</font> monopoly in general is<font color="#CCCCCC"> that not all of</font> them but a monopoly is not as efficient because they charge a higher price and

produce West quantity and they cause deadweight loss after the Civil War advances<font color="#CCCCCC"> in technology and</font> transportation led two national market so it wasn't<font color="#CCCCCC"> just you know in a small</font> city it was whole region's that<font color="#CCCCCC"> start</font>

become giant monopoly so monopoly is formed in railroads and steel and meat packing in coal and so the government <font color="#CCCCCC">got involved the Sherman Act of 1890</font> every person who shall monopolize or conspire to monopolize shall be deemed

guilty of<font color="#E5E5E5"> a felony so you go to jail if</font> <font color="#CCCCCC">you purposely try to destroy your</font> competition not by making a better product but by doing something<font color="#E5E5E5"> else</font> become a monopoly so monopolies destroy the key<font color="#E5E5E5"> ingredients a free market system</font>

which is competition<font color="#E5E5E5"> it's a market</font> failure the government steps in to prevent that from happening last market failure that I'm going<font color="#E5E5E5"> to focus on is</font> income distribution in the<font color="#E5E5E5"> free</font><font color="#CCCCCC"> market</font> in theory in the<font color="#E5E5E5"> free</font><font color="#CCCCCC"> market we'd have</font>

super super<font color="#E5E5E5"> rich people and super poor</font> people because there'd be no government to redistribute income now there's a lot of people libertarians who say no that's <font color="#E5E5E5">not what's gonna happen you'll have</font> churches and other people who<font color="#CCCCCC"> are just</font>

good people<font color="#CCCCCC"> that'll help the poor and</font> <font color="#E5E5E5">the poor can help themselves</font><font color="#CCCCCC"> if they're</font> poor who gives a crap anyways it's their own fault for being poor<font color="#E5E5E5"> no that's not</font> they all believe but this is the idea of saying<font color="#CCCCCC"> listen the free market is great</font>

leave at the free market don't mess with it it gets political here but I want to <font color="#E5E5E5">show you the concept that's all</font><font color="#CCCCCC"> I want</font> <font color="#E5E5E5">to show you i want to share the idea of</font> measuring income distribution<font color="#CCCCCC"> I made it</font> <font color="#E5E5E5">video talking about inequality</font>

particularly<font color="#E5E5E5"> the United States and what</font> it looks like<font color="#E5E5E5"> with the crash corn people</font> take a look at<font color="#E5E5E5"> that if you want to think</font> <font color="#E5E5E5">about equality and</font> but<font color="#E5E5E5"> I don't become political I'm not</font> trying<font color="#CCCCCC"> to push any ideas on you</font><font color="#E5E5E5"> I want</font>

you to understand the concept<font color="#CCCCCC"> here if we</font> want<font color="#CCCCCC"> to decide if poor people don't</font><font color="#E5E5E5"> have</font> enough or risk people<font color="#E5E5E5"> have too much or</font> rich people have enough and poor people should be fine we have to decide what it actually looks like we need a way of

analyzing income distribution and<font color="#E5E5E5"> that's</font> the side view<font color="#E5E5E5"> of some cuddlin skirt so</font> <font color="#E5E5E5">here's the process right the government</font> divides all income earners into quintiles or<font color="#E5E5E5"> five equal groups each</font> group represents twenty percent of the

population perfect equality would be the idea of twenty percent of the income is owned by twenty percent of population right if forty percent of income is owned by forty percent of population that's<font color="#E5E5E5"> not</font><font color="#CCCCCC"> the goal by any means</font><font color="#E5E5E5"> that</font>

there's no country that's even close to that but it's<font color="#E5E5E5"> the idea</font><font color="#CCCCCC"> of</font><font color="#E5E5E5"> perfect</font> inequality and then we can compare<font color="#E5E5E5"> what</font> we actually<font color="#CCCCCC"> are compared</font><font color="#E5E5E5"> to that so</font> right here<font color="#CCCCCC"> in the United States let me</font> show you this concept here's the Lorenz

curve on down the bottom we<font color="#CCCCCC"> have the</font> percent of families or households and up here we have a percent<font color="#E5E5E5"> of income this</font> line right here that diagonal line is perfect equality right so twenty percent of families having types of income in

the<font color="#E5E5E5"> United States most recent numbers</font><font color="#CCCCCC"> I</font> <font color="#E5E5E5">have a right here twenty percent of the</font> <font color="#E5E5E5">poorest twenty percent of households</font> have about five percent of the income the next forty percent so 20 plus another<font color="#CCCCCC"> twenty about 15 and</font><font color="#E5E5E5"> then right</font>

here 30 and then eighty<font color="#E5E5E5"> percent of the</font> household of about fifty five percent of the income and of course one hundred percent have one percent and you end up <font color="#E5E5E5">getting this curve called the Lorenz</font> curve what it does<font color="#E5E5E5"> is that measures</font>

income distribution<font color="#E5E5E5"> within a country</font> it's the banana graph right so the size of the<font color="#E5E5E5"> banana shows the degree of income</font> inequality<font color="#E5E5E5"> so a country like Brazil has</font> a lot of income inequality<font color="#E5E5E5"> would be a</font> bigger banana and a<font color="#E5E5E5"> country like you</font>

know Finland would have a smaller banana it's another concept here that I'm<font color="#E5E5E5"> not</font> going to go to a lot<font color="#E5E5E5"> of details on but</font> it's the idea<font color="#CCCCCC"> the gini coefficient right</font> it's a statistical measure of income tribution by measuring the area a

divided<font color="#CCCCCC"> by the sum of a and B so how big</font> <font color="#CCCCCC">is a relative to this whole area a plus</font> B the bigger the area the<font color="#E5E5E5"> more income</font> inequality the smaller the area the less income inequality okay since we're talking about income distribution let's

also talk about<font color="#E5E5E5"> the idea of taxes</font> there's three<font color="#CCCCCC"> different types of taxes</font> they are progressive regressive and proportional so first one let's talk about progressive first it takes a larger percent of income from a high

income group so the richer you are the more percent of income that<font color="#E5E5E5"> you pay a great example in</font> the United<font color="#CCCCCC"> States</font><font color="#E5E5E5"> is</font><font color="#CCCCCC"> the federal</font><font color="#E5E5E5"> income</font> system bracket so the more you're the richer you are the morning can<font color="#CCCCCC"> you bring</font>

in the more percent you have to pay right it starts like you know fifteen percent<font color="#E5E5E5"> and goes up to like almost 40% a</font> proportional tax takes the same <font color="#E5E5E5">percentage income from everybody</font> everyone pays<font color="#E5E5E5"> twenty percent of their</font>

income and a regressive tax he's the larger percent of income from<font color="#CCCCCC"> low income</font> people so the rich<font color="#E5E5E5"> are the poorer you</font> are the more you're actually paying percent of income now the part here that messes people up students get confusing

this all the time if there's a ten dollar tax let's give a<font color="#E5E5E5"> simple a ten</font> dollar tax which one of the three is a ten dollar tax well you're tempted to say proportional but it's not<font color="#E5E5E5"> you're</font> right everyone pays the same ten dollars

but that's not we're looking at number this is percent of income this is a regressive tax<font color="#E5E5E5"> right ten dollars is a</font> whole lot a larger percent of income to a super poor person been a super rich person so the sales tax for example

sales tax is a regressive tax<font color="#E5E5E5"> so the the</font> <font color="#CCCCCC">poorer you are the more percent of</font> income you're paying on your sales tax the richer you are the less percent of income right eight cents is not very much if you make you<font color="#E5E5E5"> know a million</font>

dollars a year again there's three different<font color="#CCCCCC"> types of taxes there's</font> progressive proportional and regressive taxes mode taxes are actually regressive unit<font color="#E5E5E5"> six is now over that means you</font> covered all of microeconomics but let's

go back<font color="#CCCCCC"> to</font><font color="#E5E5E5"> the very beginning remember</font> <font color="#E5E5E5">this from this concept back in unit one</font> so what I need you<font color="#CCCCCC"> to do is</font><font color="#E5E5E5"> practice you</font> gotta practice or else you're<font color="#CCCCCC"> not really</font> getting it don't<font color="#E5E5E5"> get the ultimate review</font> packet sit<font color="#E5E5E5"> down try these questions do</font>

your<font color="#E5E5E5"> best on and then go</font><font color="#CCCCCC"> to the answer</font> keys and see how you actually did the key<font color="#E5E5E5"> here is making sure you how to draw</font> those graphs make<font color="#E5E5E5"> sure you</font><font color="#CCCCCC"> in draw the</font> graphs and you know drop profit or show the deadweight loss for negative<font color="#CCCCCC"> or</font>

positive externalities you gotta draw <font color="#E5E5E5">the graphs you gotta do the calculation</font> to prove you're actually getting also take a look at practice<font color="#E5E5E5"> multiple choice</font> questions for this<font color="#E5E5E5"> unit and before</font><font color="#CCCCCC"> you</font> <font color="#E5E5E5">take the AP test your final exam take a</font>

look at this<font color="#CCCCCC"> video it covers</font><font color="#E5E5E5"> all of</font> microeconomics in like 20<font color="#E5E5E5"> minutes super</font> quick<font color="#E5E5E5"> makes you actually getting it as</font> always thank you<font color="#CCCCCC"> so much for watching my</font> videos please<font color="#E5E5E5"> tell your</font><font color="#CCCCCC"> friends that</font> this channel helps you learn and thank

<font color="#E5E5E5">you so much for getting the ultimate</font> review packet I really appreciate<font color="#E5E5E5"> okay</font> <font color="#E5E5E5">till next time</font>

Video Description

All right, it's the last unit of microeconomics! To access the full version of this video please get the Ultimate Review Packet. In this video I cover market failures, public goods (2:10), MSB=MSC (6:21), negative externalities (9:34), positive externalties.I also explain monopolies and antitrust laws (20:26) and lastly income distribution and the Lorenze curve (21:29). Thanks for watching. Please subscribe. You rock!

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