Industrial Growth and Competiton Essay Example | Topics and Well Written Essays - 750 words

Industrial Growth and Competiton - Essay Example jibe to Perloff (2012) Pigouvian valuate can be described as a corrective measure undertaken by landed estate or a body with authority usually inform of imposing tax to restore or limit any inefficient commercialise activities. Taxation is applied on a hard that produces invalidating externality to other steadfast or the well-being of the entire community. The aim is to equalise the amount of tax imposed to the negative externality.Let us examine a case of a paint manufacturing incorruptible that pollutes a nearby river using various cost concepts. With the absence of any regulation control measures, the quick can maximise its production activity without thinking of the impact imposed on another firm for example, a boat renting firm to families and individual for recreational purposes. In a typical trade analysis, the paint manufacturing firms output and price relation can be presented in realise 1 below.In the figure 1 belo w, there are three main cost concepts bare(a) affable cost (MSC), marginal mysterious cost (MPC), and Marginal Damage cost. Perloff (2012) defines these costs as follows. The private marginal cost refers to all the direct cost incurred by the firm or producer in creating goods or services. He also defines marginal damage as the additional cost to a firm producing additional unit of a product that impose negative externality on others. Further, he defines social damage cost as the summation of private marginal cost and marginal damage to a producer. This can be illustrated graphically in figure 1 below.Initially, the firms output level was at Q0due to absence of any regulation. The firms primary focus on this particular market scenario, where there is no any form of regulation on production, focuses on how to maximise production output at any given time. However, the need to reduce pollution leads to introduction of a pigouvian tax to kick in the firm comply with existing product ion regulation and be mindful of other