ECO105Y1 Lecture Notes - Externality, Social Cost, Market Price
Document Summary
Producing too much of things we don"t want (second hand smoke, pollution, Chapter 10: acid rain on others parades (externalities, carbon taxes, Negative or positive externalities make smart private choice different from smart choices. Smart choices require that all additional benefit and additional opportunity costs including externalities be counted. Negative externalities (external costs) costs to society from your private choice that affect others, but that you do not pay. Positive externalities (external benefits) benefits to society from your private choice that affect others, but that others do not pay for. Externalities occur when no clear property rights exist. When externalities exist, prices don"t accurately reflect all social cost and benefits, preventing markets from coordinating private smart choices with social smart choices. To coordinate smart private choices that generate negative externalities, with smart social choices, choose the quantity of output where marginal social cost equals marginal social benefit.
