ECO101H1 Lecture Notes - Lecture 1: Diminishing Returns, Mira-Bhayandar Municipal Corporation, Pigovian Tax

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31 Mar 2016
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ECO101H1 Full Course Notes
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ECO101H1 Full Course Notes
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Externality (third party affected by the production or consumption) Private maginal benefit soical marginal benefit (can be positive or negative: negative production externality, social marginal cost lies above the private marginal cost (msc > Qmkt > qopt and pmkt < popt: market outcome: quantity too high and price too low, e. g. pollution, positive production externality, social marginal cost lies below the private marginal cost (msc < mpc): Qmkt < qopt and pmkt > popt: market outcome: quantity too low and price too high, negative consumption externality, social marginal benefit lies below the private marginal benefit (msb. Qmkt > qopt and pmkt >popt: market outcome: quantity too high and price too high, e. g. Drunk-driving: positive consumption externality, social marginal benefit lies above the private marginal benefit (msb. Qmkt < qopt and pmkt < popt: market outcome: quantity too low and price too low, e. g.

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