ECON 1116 Chapter Notes - Chapter 10: Coase Theorem, Invisible Hand, Normal Good
24 Aug 2016
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Fails to produce the best outcome due to the externalities: positive externalities, marginal differences across different quantity e. i. Marginal utility decreases as you consume more of a product e. ii. Total happiness/utility increases with each product e. iii. Social cost = pollution caused by the market activity + private cost c. ii. Private cost = supply curve: negative externalities, harms the third party, with no compensation, exhaust from automobiles, barking dogs noise pollution c. i. Neighbors who don"t own the dog suffers from the owner having a dog: cost to society of producing a good > cost to producers for making the good, social cost e. i. Private cost of the producers + cost to those bystanders affected by the negative externality e. ii. Social cost curve is vertically above the supply curve e. ii. 1. e. ii. 2. Takes into account the external costs imposed on society. Vertical distance between the two curves represents negative externality per unit e. ii. 3.
