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Lecture 14

Economics 1021A/B Lecture Notes - Lecture 14: Cost, Social Cost, Avoidance Speech

Course Code
ECON 1021A/B
Michael Parkin

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Chapter 16 Externalities
Individual agents acting in their own self-interest, can collude and produce an outcome
which is also in the social interest
ocost or benefit to someone who wasn’t involved in the transaction
o4 types
Negative production
Burning coal to generate electricity emits CO2
Positive production
Less common than negative production externality
Create benefit for a 3rd party who is not involved in the production
Negative consumption
Positive consumption
Other people benefit from your consumption choice
oNegative externalities
Cause overproduction, inefficient outcome
Have costs
oCost borne by producer of a good or service
oMarginal private cost
Private cost of producing one more unit of it
oMarginal external cost
Cost of producing one more unit of it that falls on
other people
Social cost
Lead to underproduction in the absnse of regulation or some sort of
intervention from the government
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