Externalities

The Real Costs

Worldwide gas prices

Worldwide gas taxes

US Gas Tax

• What is your opinion about the US gas tax? (Should it go up or down?)

Externalities

• Definition: An externality is an effect of a purchase or decision by one set of parties on others who did not have a choice and whose interests were not taken into account. Classic example of a negative externality: pollution, generated by some productive enterprise, and affecting others who had no choice and were probably not taken into account.

Externalities

In other words…Side Effects

Externality Video

Real Externalities

• List 2 specific real life examples of externalities:

Real Externalities

• Smoking• Pollution• Industrial farming• Climate change

The Free Market

• The free market is efficient and sets the price of gas based on supply and demand.

• Is there anything the free market does not consider in the cost?

• Who has to pay the price of these costs?

Hidden Costs

• There are certain hidden or long term costs of the transaction that the free market does not take into consideration. Should the government impose a tax equal to the true costs of the transaction?

Exxon

Exxon set an annual profit record by earning$45.2 billion, or nearly $1500 a second in 2008.

Gas Price

• What are some factors that determine the price of gas?

Factors

• Gas price free market only• Drilling• Refining• R & D• Marketing• Employees• Regulations• Profit• Tax

Externalities

• What factors that effect others are not considered when setting the price of gas?

Externalities

• Gas price with externalities• Cost of roads• Cost of infrastructure• Cost of wars• Environment• Climate Change• Pollution• Health costs of pollution

CancerEmphysema

Heart disease

Who pays?

• Who should pay those costs?

• What should the government do about the costs that are not included in the price of gas but that we all bear?

Gas prices

• How much would you charge per gallon of gas to cover the externalities of gasoline?