ECON 201 Lecture Notes - Lecture 14: Coase Theorem, Deadweight Loss, Marginal Utility
14 Apr 2016
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Document Summary
Markets don"t always lead to the best outcome. Externaliies the impact on a third party of a transacion between others, also known as. Spillovers : creates a cost for others = external cost = negaive externality, third party has a beneit = external beneit = posiive externality. Opimal amount depends on social beneits and costs too. Market failure situaion here market does not allocate resources eiciently. External costs: air and water polluion, texing while driving, chemical runof that afects ish stocks. External beneits: educaion, beehives next to almond orchards, preserved farmland. Ex: more beneicial to build dunes along the shore: protects communiies from rising water levels and storms. One person who owns beach front property will not want dunes on his land. That person ignores the social cost (puing everybody else in danger) Marginal social cost addiional cost imposed on society as a whole by an addiional unit: ex: acid rain, smog, contaminated water.
