ECON 3804 Lecture Notes - Lecture 3: Deadweight Loss, Aggregate Demand, Economic Equilibrium
19 Dec 2016
School
Department
Course
Professor
ECON 3804
Economics of Pollution (Ch.5)
Benefit-Cost Analysis (Ch.6)
Maya Papineau
Department of Economics
Carleton University
ECON 3804
September 27, 2016
M. Papineau (CU) ECON 3804 - Environmental Economics 27/09/2016 1 / 36
Lecture 2 recap
Recap: competitive market equilibrium
Aggregate Demand (D) = Aggregate Supply (S)
Price&
Quan+ty&
Aggregate&Supply&
PS&
Aggregate&Demand&
CS&
Pc&
Qc&
CS = consumer surplus
PS = producer surplus
SWC = social welfare in the
competitive economy
= CS + PS
In our in-class examples, we found that for equilibrium price = $3, CS = 6, PS =
4.5, and therefore SWc= 10.5
M. Papineau (CU) ECON 3804 - Environmental Economics 27/09/2016 2 / 36
Lecture 2 recap
Recap: competitive market failure
We looked at the demand and supply of a polluting good to explain
the problems associated with pollution.
-We identified marginal external costs (MEC) as the problem
-We said that when a negative pollution externality exists in a
competitive economy, the MEC create a market failure:
-Too much of a polluting good is produced
-Adead weight loss (DWL) to society is created
-The equilibrium is not socially efficient
-Net social value is not maximized
M. Papineau (CU) ECON 3804 - Environmental Economics 27/09/2016 3 / 36
Document Summary
Swc = social welfare in the competitive economy. In our in-class examples, we found that for equilibrium price = , cs = 6, ps = 4. 5, and therefore swc = 10. 5: papineau (cu) We looked at the demand and supply of a polluting good to explain the problems associated with pollution. We identi ed marginal external costs (mec) as the problem. We said that when a negative pollution externality exists in a competitive economy, the mec create a market failure: Too much of a polluting good is produced. Production externality: when the production of a good produces a pollutant, and costs imposed on individuals in society are not considered in the private market exchange. We also looked at the demand and supply of a public good. We identi ed marginal external bene ts (meb) as a problem leading to under-provision of public goods.
