ECN 104 Lecture Notes - Lecture 11: Maryland Route 300, Ronald Coase, System On A Chip

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Ecn 104 chapter 16 externalities march 30th. Externalities: an external cost is an uncompensated cost that an individual or firm imposes on others, an external benefit is a benefit that an individual or firm confers on others without receiving compensation. Yet most pollution is a side effect of activities that provide us with good things. Our air is polluted by power plants that generate the electricity that lights our cities, and our rivers are damaged by fertilizer runoff from farms that grow our food. Pollution is a side effect of useful activities, so the optimal quantity of pollution isn"t zero. The marginal social cost of pollution (msc) is the additional cost imposed on society as a whole by an additional unit of pollution: msc = mpc + mec. The marginal private cost of pollution (mpc) is the additional cost imposed on the polluter if the polluter creates another unit of pollution.

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