Microeconomics Externalities
Externality
Externality Benefits or Costs to someone else   - Third Party-Positive or Negative
Private   SocialBenefits CostsPersonalize the benefit    Social the cost
Market Failure
Market FailureMarkets don’t always produce the mostdesirable economic     outcomes
Negative Externality
Negative Externality      Pollution Second-Hand Smoke       Litter     Congestion     Boom Cars
Positive Externality
Positive Externality       Trust       Ideas   Improvements
Negative Externality
Negative ExternalityToo much of the good is   produced because someone else is paying    part of the costs
Positive Externality
Positive Externality Too little of the good is   produced becauseproducer doesn’t receive     all the benefits
GovernmentIntervention
Government InterventionSubsidize PositivesTax and Regulate   Negatives
Government Regulation
Government RegulationCommand and ControlIncentive-BasedOptimal level of pollution?Coupons to pollute
Parking Command and Control         Incentive-Basedhttp://glpooley.blogspot.com/2010/12/incentives-        matter-speed-ca...
$   Cost         0%              50%           100% The cost to make things perfectly pure is infinite.Therefore there is a...
Externalities& Market Failures
Externalities & Market FailuresLack of Property Rights
Property Rights    reduce  contention
Transaction Costs
Transaction Costs    Costs in time andresources to negotiate and  enforce an agreement
Coase Theorem
Coase Theorem  Solve contentionwith property rightsif transaction costs       are low
Externalities
Externalities
Externalities
Externalities
Externalities
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Externalities

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  • Externalities

    1. 1. Microeconomics Externalities
    2. 2. Externality
    3. 3. Externality Benefits or Costs to someone else - Third Party-Positive or Negative
    4. 4. Private SocialBenefits CostsPersonalize the benefit Social the cost
    5. 5. Market Failure
    6. 6. Market FailureMarkets don’t always produce the mostdesirable economic outcomes
    7. 7. Negative Externality
    8. 8. Negative Externality Pollution Second-Hand Smoke Litter Congestion Boom Cars
    9. 9. Positive Externality
    10. 10. Positive Externality Trust Ideas Improvements
    11. 11. Negative Externality
    12. 12. Negative ExternalityToo much of the good is produced because someone else is paying part of the costs
    13. 13. Positive Externality
    14. 14. Positive Externality Too little of the good is produced becauseproducer doesn’t receive all the benefits
    15. 15. GovernmentIntervention
    16. 16. Government InterventionSubsidize PositivesTax and Regulate Negatives
    17. 17. Government Regulation
    18. 18. Government RegulationCommand and ControlIncentive-BasedOptimal level of pollution?Coupons to pollute
    19. 19. Parking Command and Control Incentive-Basedhttp://glpooley.blogspot.com/2010/12/incentives- matter-speed-camera-lottery.html
    20. 20. $ Cost 0% 50% 100% The cost to make things perfectly pure is infinite.Therefore there is an optimal amount of cleanliness where marginal benefits equal marginal costs.
    21. 21. Externalities& Market Failures
    22. 22. Externalities & Market FailuresLack of Property Rights
    23. 23. Property Rights reduce contention
    24. 24. Transaction Costs
    25. 25. Transaction Costs Costs in time andresources to negotiate and enforce an agreement
    26. 26. Coase Theorem
    27. 27. Coase Theorem Solve contentionwith property rightsif transaction costs are low
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