ECON 102 Chapter Notes - Chapter 25: Coase Theorem, Marginal Utility, Marginal Cost

• School: University of Illinois
• Department: Economics
• Course: ECON 102
• Professor: Vasquez

Document Summary

Externality a situation when in the actions of an individual or firm benefits or harms another individual or firm without providing any compensation to those creating the benefit or to those harmed. Negative externality (cost for others) example: firm dumps stuff in stream and fishers are harmed. Because these benefits and costs are external, the market will not allocate resources efficiently. Asking a question during class tends to affect other students in the class, either positively or negatively (depending on the quality of the question). Markets on their own often fail to correct of externalities because markets on their own do not send the right signal to consumers and producers. Marginal social cost is the real cost because it includes the private cost as well as external costs to other ppl to the supply curve. When marginal social costs are considered, the equilibrium price of cattle increases, and the equilibrium quantity falls. Positive externalities create a similar but opposite problem.