ECON 1B03 Lecture Notes - Lecture 11: Marginal Cost, Demand Curve, Competitive Equilibrium

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Benefit enjoyed by individual even though they did not pay to. Sometimes there are benefits and costs that arise in market that go uncompensated. Ex. your neighbour goes to garden centre, buys a big tree and you enjoy shade that it. Ex. a beekeeper farms bees to produce honey, but bees also pollinate beautiful flowers brings to your yard. This is a positive externality in consumption that you enjoy in park next door. Ex. your neighbour buys a dog and its barking keeps you awake all night. Ex. local factory emits nasty chemicals into lake during production of steel and pollutes. Cost suffered by individuals for which they are not compensated negative externality in consumption the water so you can"t swim there anymore. Marginal private benefit is max price someone would pay to consume one more unit of a good . Generally, mpb decreases as more of good is consumed (hence downward sloping demand curve).

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