1 / 10

ECON 160

ECON 160. Externalities Ch 10,11 Week 12 April 19-21, 2010. Market is Efficient since at Qe the Marginal Value = Marginal cost. $ P x. $ 10 $ 9 $ 8 $ 7 $ 6 $ 5 $ 4 $ 3 $ 2 $ 1. Demand. Supply. Pe. D x. Marginal Cost. Marginal Value. Qty x /T.

marlin
Download Presentation

ECON 160

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. ECON 160 Externalities Ch 10,11 Week 12 April 19-21, 2010

  2. Market is Efficient since at Qe the Marginal Value = Marginal cost $ P x $ 10 $ 9 $ 8 $ 7 $ 6 $ 5 $ 4 $ 3 $ 2 $ 1 Demand Supply Pe Dx Marginal Cost Marginal Value Qtyx /T 1 2 3 4 5 6 7 8 9 10 11 12 Qe

  3. Externalities Some Transactions affect other people than the Buyers and Sellers The market outcome may not be efficient There may be an appropriate role of government to intervene to increase social welfare

  4. Negative Externality in Consumption Sx $ Price x $Pe $Pe’ Dx Dx’ Qe’ Qe Qty x /T

  5. Negative Externality in Production Sx’ True MC $ Price x Sx $Pe’ $Pe Dx Qty x /T Qe’ Qe

  6. Solutions to Negative Externalities • Problem: Market overproduces relative to optimum • Solution: Reduce output to optimum • Tax buyers (reduced demand  reduces Qty.) • Tax Sellers (reduces supply  reduces quantity)

  7. Positive Externality in Consumption Sx $ Price x $Pe’ $Pe Dx’ Dx Qe Qe’ Qty x /T

  8. Solutions to Positive Externalities • Problem: Market underproduces relative to optimum • Solution: Increase output to optimum • Subsidize buyers (Increase demand  increase Qty.) • Subsidize Sellers (Increase supply  increase quantity)

  9. Public Goods • Good where one person’s consumption increases consumption available for others • Nonexcludable: Once produced, cannot exclude consumption by others • Nonrivalrous: Once produced, consumption by one does not exclude consumption by others.

  10. Market Failures • Private markets and social efficiency • Nonexcludability • Free riding • Nonrivalry

More Related