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Chapter 16 Notes.docx

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Department
Economics
Course
Economics 1021A/B
Professor
Emilie Rivers
Semester
Fall

Description
Economics Chapter 16 Externalities in Our Lives  Externality o Cost or a benefit that arises from production and falls on someone other than the producer o Cost or benefit that arises from consumption and falls on someone other than the consumer  Negative Externality – externality that imposes a cost  Positive Externality – externality that provides a benefit -Negative Production Externalities  Congestion – traffic, burning additional fuel, every rush-hour diver imposes a cost on the other drivers  Pollution and Carbon Emission – increasing carbon footprint o Air pollution – road transportation and industrial process o Water pollution – dumping of industrial waste o Land pollution – dumping toxic waste products -Negative Consumption Externalities  Smoking  Loud outdoor concerts  Not picking up leaves  Allowing a dog to bark -Positive Production Externalities  Two things that benefit each other when they work together -Positive Consumption Externalities  Flu vaccination  Building a beautiful building Negative Externality: Pollution -Private Cost and Social Cost  Private cost – cost that is borne by the producer of a good or service  Marginal cost – cost of producing an additional unit of a good or service  Marginal private cost (MC) – cost of producing an additional unit of a good or service that is borne by its producer  External cost – cost of producing a good or service that is not borne by the producer but borne by other people  Marginal external cost – cost of producing an additional unit of a good or service that falls on people other than the producer  Marginal social cost (MSC) – marginal cost incurred by the producer and by everyone else on whom the cost falls – by society  MSC = MC + marginal external cost  Valuing an External Cost o Amount the external cost poses on the service/product  External Cost and Output o MSC and MC curves are upward sloping -Production and Pollution: How Much?  Amount of pollution created depends on the market equilibrium price and quantity of the good produced  Demand curve is downward sloping -Property Rights  Legally established titles to the ownership, use and disposal of factors of production and goods and services that are enforceable in the courts  Efficient when MSB = MSC -The Coase Theorem  Proposition that if property rights exist, if only a small number of
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