ECO 1104 Lecture 18: Detailed Lecture and Textbook Notes for Chapter 10-11

• School: University of Ottawa
• Department: Economics
• Course: ECO 1104
• Professor: J Ianweizhen

Document Summary

Introduction: one of the principles from chapter 1: Markets are usually a good way to organize economy activity. In presence of externalities, public policy can improve efficiency. Supply curve private costs, the costs directly incurred by sellers. Demand curve shows private value, the value to buyers (the price they are willing to pay). Note that maximizing consumer + producer surplus is not the same as maximizing total surplus when the trades impose external costs (or benefits) on bystanders. Analysis of a negative externality: pollution is the cost of gasoline to the society, this means that society has a different pov of the supply curve called the social supply curve. If there is no social supply curve it will result in: more pollution being incurred, more resources needed to fix things like health problems, with the social supply curve society tries to keep the supply of gasoline low. At any q < 20, value of additional gas exceeds social cost.