BUS 082 Lecture Notes - Lecture 27: Traffic Congestion, Environmental Degradation, Overgrazing

• School: College of The Sequoias
• Department: Business (BUS)
• Course: BUS 082
• Professor: gradin

Document Summary

Impact on environment is a negative externality (not taken into account when making individual decisions of production/consumption) Outcomes are generated by production /consumption of goods. Individual makes decisions based on private gains and the price doesn"t take into account the externality > market failure. Example: water-use choices of individuals living upstream affect quantity/quality of water available to individuals living downstream. Environmental degradation is more problematic because it deals with a specific type of good. Goods are defined based on: rival vs. non-rival, excludable vs. non-excludable. Excludability: if non-excludable, once good exists, it can be used by one or many indivduals (everyone!) Individual users acting independently according to their own self-interest behave contrary to the common good > results in overuse and depletion of common resources (self-interest against societal-interest) Hardin (1968): unregulated grazing on common land > man compelled to increase herd without limit in a world that is limited. Examples of the tragedy of the commons.