ECON 1001 Lecture Notes - Lecture 10: Cost, Demand Curve, Coase Theorem
5 Dec 2020
School
Department
Course
Professor
Document Summary
Recall: markets are usually a good way to organize economic activity. In the absence of market failures, the competitive market outcome is efficient, maximizes total surplus. Externality: the uncompensated impact of one person"s actions on the well-being of a bystander. The effect that is not compensated: negative externality: the effect on bystanders is adverse. Bad impact: a tax on a good with a negative externality can internalize the externality by adding the external cost to the private cost so the market accounts for the social cost, ex, pollution from automobiles. Consumers generally ignore this externality when purchasing a vehicle. The government addresses this problem by setting emissions standards and taxing the consumption of gasoline: barking dogs. Dog owners do not bear the full cost of the noise that disturb and upsets their neighbors. Local governments can implement local noise ordinances to minimize this phenomenon: positive externality: the effect on bystanders is beneficial. Social value>private value: ex, restored historic buildings.
