ECON 1050 Chapter 16: Econ - Ch 16

• School: University of Guelph
• Department: Economics
• Course: ECON 1050
• Professor: Eveline Adomait

Document Summary

Externality: a cost or benefit that arises from production/consumption and falls on someone other than the producer/consumer. Negative externality imposes a cost and a positive externality creates a benefit. 4 types: negative production ext, common, ex. noise from aircraft and trucks, polluted rivers/lakes, destruction of animal habitat, positive production ext, less common, ex. Private cost of production is paid by the producer. Marginal private cost (mc): private cost of producing one more unit of a good. External cost of production is not paid by producers but paid by others. Marginal external cost: cost of producing one or more unit of a good that falls on people other than the producer. Marginal social cost: mc incurred by entire society (by the producer and by everyone else on whom the cost falls: msc = mc + mec, expressed in dollars but the dollars represent forgone opportunity. Mpc, mec and msc increase with output.