ECO101H1 Lecture Notes - Lecture 14: Garden Gnome, Pigovian Tax, Coase Theorem

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23 Dec 2016
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ECO101H1 Full Course Notes
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ECO101H1 Full Course Notes
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Martel failure 2: externalities (the first one was with monopolies) Market failure i: market power (e. g. , monopoly: when the outcome of the perfectly competitive market was desirable q pc = Qeffic, (cid:862)(cid:373)o(cid:374)opol(cid:455)(cid:863) out(cid:272)o(cid:373)e does (cid:374)ot (cid:373)a(cid:454)i(cid:373)ize total su(cid:396)plus. Market failure ii: externality: outcome of perfectly competitive market does not maximize total surplus. Societal costs and benefits differ from private costs and benefits i. e. , we relax assumption big. Exter(cid:374)alities: (cid:373)arkets (cid:449)here there"s people (cid:449)ho (cid:271)e(cid:374)efit or (cid:271)are a (cid:272)ost (cid:449)he(cid:374) there"s a transaction. Not all costs accrue to seller and not all benefit goes to buyer. A late-night party example: private benefit to residents of 85 hoxsey street. : private cost to residents of 85 hoxsey street. Because benefit>cost, but this imposes an external cost: external cost imposed on residents of 83 hoxsey street. Ts = private benefit private cost external cost.

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