ECO101H1 Lecture Notes - Lecture 13: Sundae, Allocative Efficiency, Natural Monopoly

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ECO101H1 Full Course Notes
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ECO101H1 Full Course Notes
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Government can correct for production or consumption externalities by imposing taxes on the buyers or sellers. Incidence of tax does not depend on whether imposed on buyer or seller. 1: smc = private mc + externality / smb = private mb + externality, when property rights are well defined, the private market is allocatively efficiency. The role of government in a market economy. Natural monopoly (declining atc as output expands) Government policy: regulate (set p = atc) b. If there is a negative production externality, such as pollution, market. Fails by producing too much output and setting too low a price c. Public goods: alter distribution of income (tax/transfer programmes) Public and private goods: two characteristics of goods, excludability: a person can be excluded from using a good, rivalness: one person"s use of good diminishes other people"s use, pure private goods: (excludable, rival example: ice cream sundae) Pure public goods: (non-excludable, non-rival example: national defense, criminal justice system)

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