ECON 200 Lecture Notes - Lecture 26: Demand Curve, Social Cost, Externality
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ECON 200 Full Course Notes
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Econ 200 i lecture 26 externalities. Externality: the uncompensated impact of one person"s actions on the well-being of a bystander. Two types of externalities: negative externality: impact on the bystander is adverse. Noise in a library, pollution: positive externality: impact on the bystander is beneficial. In the presence of an externality, self-interested buyers and sellers neglect the external costs/benefits of their actions: this renders a market inefficient. Principle 7: government/public policy can sometimes improve efficiency. The government can alter incentives so people care about their actions and will take into account the external effects. External cost = value of negative impact on bystander. Social cost = private cost + external cost. At qm, the value < social cost. External benefit = value of positive impact on bystander. Social value = private benefit + external benefit. The good is underconsumed, as social value > cost.
