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Lecture 41

CAS EC 101 Lecture Notes - Lecture 41: Coase Theorem, Deadweight Loss, Influenza VaccinePremium


Department
Economics
Course Code
CAS EC 101
Professor
Bruce Watson
Lecture
41

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EC101: Lecture Notes
Externalities and responses
Negative Production externality
- The DWL is below MSC and above MPC
- The market, left alone, gets quantity wrong. This creates deadweight loss
Marginal social cost
MSC = marginal private cost + additional cost to society
Positive Production externality
- The DWL is below the MPC and above the MSC
- The market, left alone, gets the quantity wrong. This creates deadweight loss
Negative consumption externality
- Example: second hand smoke
- The deadweight loss is below the MPB and above the MSB
Positive consumption externality
- Example: getting a flu shot helps you not get sick, but also helps prevent others from
getting sick
Positive solutions to externalities
- Government action is not always needed to solve the problem of externalities
- Types of private solutions
o Moral codes/social sanctions
o Contracting between parties
Coase Theorem
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