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Externalities

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Externalities

Externalities

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Transcript

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