Externalities

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Externalities

  1. 1. Externalities Economics Unit 2
  2. 2. Rival vs. Nonrival Goods <ul><li>A product is rival when consumption by one person reduces the amount available to others. </li></ul><ul><li>A nonrival good can be simultaneously or jointly consumed by people without reducing the amount available to others. </li></ul>
  3. 3. Excludable vs. Nonexcludable <ul><li>A good is excludable if its use is easily limited to those who pay to use it. </li></ul><ul><li>A nonexcludable good or service can be used even by people who do not pay for it. </li></ul><ul><li>Ex. a good might be excludable but nonrival and vice versa. </li></ul>
  4. 4. External Costs <ul><li>Some benefits or costs can fall on “third parties”- people or firms other than the producers and paying consumers of the products </li></ul><ul><li>Pollution, landscaping, etc. </li></ul><ul><ul><li>External loss or benefit </li></ul></ul><ul><ul><li>Free riding?! </li></ul></ul>

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